1

the partnership formed in 1946, and that her 8% share

AGENCY, TRUST, was limited to the businesses enumerated in the Acknowledgement
of Participating Capital
& PARTNERSHIP
Petitioner filed before Suprement Court petition for review. He
with Atty. Raymund Christian Ong Abrantes, CPA contends that from this partnership, several other corporations and
Ateneo de Davao University / College of Law businesses were established and several real properties were
By: Jay J.L. Astillo acquired. In this petition, he is essentially asking for his 6% share in
the subject real properties. He is relying on the Acknowledgement of
Participating Capital, on his own testimony, and Antonieta Jarantilla's
Article 1767 testimony to support this contention.

ISSUE: The core issue is whether or not the partnership subject of

Jarantilla, Jr. vs. Jarantilla, et. al the Acknowledgement of Participating Capital funded the subject real
G.R. No. 154486, December 1, 2010 properties. In other words, what is the petitioner's right over these
real properties?
FACTS: In 1948, the spouses Rosita Jarantilla and Vivencio
Deocampo entered into an agreement with the spouses Buenaventura HELD: Both the petitioner and Antonieta Jarantilla characterize their
Remotigue and Conchita Jarantilla to provide mutual assistance to relationship with the respondents as a co-ownership, but in the same
each other by way of financial support to any commercial and breath, assert that a verbal partnership was formed in 1946 and was
agricultural activity on a joint business arrangement. This business affirmed in the 1957 Acknowledgement of Participating Capital.
relationship proved to be successful as they were able to establish a
manufacturing and trading business, acquire real properties, and There is a co-ownership when an undivided thing or right belongs to
construct buildings, among other things. different persons. It is a partnership when two or more persons bind
themselves to contribute money, property, or industry to a common
On April 29, 1957, the spouses Buenaventura and Conchita Remotigue fund, with the intention of dividing the profits among themselves. The
executed a document wherein they acknowledged that while Court, in Pascual v. The Commissioner of Internal Revenue, quoted
registered only in Buenaventura Remotigue's name, they were not the the concurring opinion of Mr. Justice Angelo Bautista in Evangelista v.
only owners of the capital of the businesses Manila Athletic Supply The Collector of Internal Revenue to further elucidate on the
(712 Raon Street, Manila), Remotigue Trading (Calle Real, Iloilo City) distinctions between a co-ownership and a partnership, to wit:
and Remotigue Trading (Cotabato City). In this same
"Acknowledgement of Participating Capital," they stated the
participating capital of their co-owners as of the year 1952, with I wish however to make the following observation: Article 1769 of the
Antonieta Jarantilla's stated as eight thousand pesos (P8,000.00) and new Civil Code lays down the rule for determining when a transaction
Federico Jarantilla, Jr.'s as five thousand pesos (P5,000.00). should be deemed a partnership or a co-ownership. Said article
paragraphs 2 and 3, provides;
The present case stems from the amended complaint dated April 22,
1987 filed by Antonieta Jarantilla against Buenaventura Remotigue, (2) Co-ownership or co-possession does not itself establish a
Cynthia Remotigue, Federico Jarantilla, Jr., et. al. for the accounting partnership, whether such co-owners or co-possessors do or do not
of the assets and income of the co-ownership, for its partition and the share any profits made by the use of the property;
delivery of her share corresponding to eight percent (8%). Antonieta
further claimed co-ownership of certain properties (the subject real (3) The sharing of gross returns does not of itself establish a
properties) in the name of the defendants since the only way the partnership, whether or not the persons sharing them have a joint or
defendants could have purchased these properties were through the common right or interest in any property from which the returns are
partnership as they had no other source of income. derived;

The respondents, including petitioner herein, in their Answer, denied From the above it appears that the fact that those who agree to form
having formed a partnership with Antonieta in 1946. They did not a co- ownership share or do not share any profits made by the use of
deny the existence and validity of the "Acknowledgement of the property held in common does not convert their venture into a
Participating Capital" and in fact used this as evidence to support their partnership. Or the sharing of the gross returns does not of itself
claim that Antonieta's 8% share was limited to the businesses establish a partnership whether or not the persons sharing therein
enumerated therein. With regard to Antonieta's claim in their other have a joint or common right or interest in the property. This only
corporations and businesses, the respondents said these should also means that, aside from the circumstance of profit, the presence of
be limited to the number of her shares as specified in the respective other elements constituting partnership is necessary, such as the clear
articles of incorporation. The respondents denied using the intent to form a partnership, the existence of a juridical personality
partnership's income to purchase the subject real properties and said different from that of the individual partners, and the freedom to
that the certificates of title should be binding on her. transfer or assign any interest in the property by one with the consent
of the others.
During the course of the trial at the RTC, petitioner Federico Jarantilla,
Jr., who was one of the original defendants, entered into a It is evident that an isolated transaction whereby two or more persons
compromise agreement[17] with Antonieta Jarantilla wherein he contribute funds to buy certain real estate for profit in the absence of
supported Antonieta's claims and asserted that he too was entitled to other circumstances showing a contrary intention cannot be
six percent (6%) of the supposed partnership in the same manner as considered a partnership.
Antonieta was.
Persons who contribute property or funds for a common enterprise
The RTC, decided in favor of Antonieta, to deliver to the plaintiff her and agree to share the gross returns of that enterprise in proportion
8% share or its equivalent amount on the real properties and to to their contribution, but who severally retain the title to their
deliver to the plaintiff her 8% share or its equivalent amount on the respective contribution, are not thereby rendered partners. They have
Remotigue Agro-Industrial Corporation, Manila Athletic Supply, Inc., no common stock or capital, and no community of interest as principal
MAS Rubber Products, Inc. and Buendia Recapping Corporation based proprietors in the business itself which the proceeds derived.
on the shares of stocks present book value.
A joint purchase of land, by two, does not constitute a co-partnership
Both the petitioner and the respondents appealed this decision to the in respect thereto; nor does an agreement to share the profits and
Court of Appeals. The petitioner claimed that the RTC "erred in not losses on the sale of land create a partnership; the parties are only
rendering a complete judgment and ordering the partition of the co- tenants in common.
ownership and giving to [him] six per centum (6%) of the properties."
Where plaintiff, his brother, and another agreed to become owners of
While the Court of Appeals agreed to some of the RTC's factual a single tract of realty, holding as tenants in common, and to divide
findings, it also established that Antonieta Jarantilla was not part of the profits of disposing of it, the brother and the other not being
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
2
entitled to share in plaintiff's commission, no partnership existed as creditors have been paid, whatever is left of the partnership assets
between the three parties, whatever their relation may have been as becomes available for the payment of the partners' shares.[42]
to third parties.
There is no evidence that the subject real properties were assets of
In order to constitute a partnership inter sese there must be: (a) An
the partnership referred to in the Acknowledgement of Participating
intent to form the same; (b) generally participating in both profits and
Capital.
losses; (c) and such a community of interest, as far as third persons
are concerned as enables each party to make contract, manage the
business, and dispose of the whole property. x x x. Sy vs. Court of Appeals
G.R. No. 142293, February 27, 2003
The common ownership of property does not itself create a
partnership between the owners, though they may use it for the FACTS: Sometime in 1958, private respondent Jaime Sahot5 started
purpose of making gains; and they may, without becoming partners, working as a truck helper for petitioners’ family-owned trucking
agree among themselves as to the management, and use of such business named Vicente Sy Trucking. In 1965, he became a truck
property and the application of the proceeds therefrom.[38] (Citations driver of the same family business, renamed T. Paulino Trucking
omitted.) Service, later 6B’s Trucking Corporation in 1985, and thereafter known
as SBT Trucking Corporation since 1994. Throughout all these
Under Article 1767 of the Civil Code, there are two essential elements changes in names and for 36 years, private respondent continuously
in a contract of partnership: (a) an agreement to contribute money, served the trucking business of petitioners.
property or industry to a common fund; and (b) intent to divide the
profits among the contracting parties. The first element is In April 1994, Sahot was already 59 years old. He had been incurring
undoubtedly present in the case at bar, for, admittedly, all the parties absences as he was suffering from various ailments. Particularly
in this case have agreed to, and did, contribute money and property causing him pain was his left thigh, which greatly affected the
to a common fund. Hence, the issue narrows down to their intent in performance of his task as a driver. Sahot had filed a week-long leave
acting as they did. It is not denied that all the parties in this case sometime in May 1994. At the end of his week-long absence, Sahot
have agreed to contribute capital to a common fund to be able to later applied for extension of his leave for the whole month of June, 1994.
on share its profits. They have admitted this fact, agreed to its It was at this time when petitioners allegedly threatened to terminate
veracity, and even submitted one common documentary evidence to his employment should he refuse to go back to work. They carried out
prove such partnership - the Acknowledgement of Participating their threat and dismissed him from work, effective June 30, 1994. He
Capital. ended up sick, jobless and penniless.

The Acknowledgement of Participating Capital is a duly notarized

document voluntarily executed by Conchita Jarantilla-Remotigue and Sahot filed with the NLRC NCR Arbitration Branch, a complaint for
Buenaventura Remotigue in 1957. Petitioner does not dispute its illegal dismissal
contents and is actually relying on it to prove his participation in the
partnership. Article 1797 of the Civil Code provides: For their part, petitioners admitted they had a trucking business in the
1950s but denied employing helpers and drivers. They contend that
private respondent was not illegally dismissed as a driver because he
Art. 1797. The losses and profits shall be distributed in was in fact petitioner’s industrial partner. They add that it was not
conformity with the agreement. If only the share of each partner until the year 1994, when SBT Trucking Corporation was established,
in the profits has been agreed upon, the share of each in the losses and only then did respondent Sahot become an employee of the
shall be in the same proportion. company.

In the absence of stipulation, the share of each partner in the

The Labor Arbiter ruled that there was no illegal dismissal in Sahot’s
profits and losses shall be in proportion to what he may have
case. Private respondent had failed to report to work. Moreover, said
contributed, but the industrial partner shall not be liable for the
the Labor Arbiter, petitioners and private respondent were industrial
losses. As for the profits, the industrial partner shall receive such
partners before January 1994. The Labor Arbiter concluded by
share as may be just and equitable under the circumstances. If
ordering petitioners to pay "financial assistance" of P15,000 to Sahot
besides his services he has contributed capital, he shall also receive a
for having served the company as a regular employee since January
share in the profits in proportion to his capital. (Emphases supplied.)
1994 only.
It is clear from the foregoing that a partner is entitled only to his share
as agreed upon, or in the absence of any such stipulations, then to
National Labor Relations Commission modified the judgment of the
his share in proportion to his contribution to the partnership. The
Labor Arbiter. It declared that private respondent was an employee,
petitioner himself claims his share to be 6%, as stated in the
not an industrial partner, since the start.
Acknowledgement of Participating Capital. However, petitioner fails
to realize that this document specifically enumerated the businesses
covered by the partnership: Manila Athletic Supply, Remotigue ISSUE: Whether or not Sahot was an industrial partner of the
Trading in Iloilo City and Remotigue Trading in Cotabato City. Since trucking services.
there was a clear agreement that the capital the partners contributed
went to the three businesses, then there is no reason to deviate from HELD: We agree with complainant that there was error committed by
such agreement and go beyond the stipulations in the the Labor Arbiter when he concluded that complainant was an
document. Therefore, the Court of Appeals did not err in industrial partner prior to 1994. A computation of the age of
limiting petitioner's share to the assets of the businesses complainant shows that he was only twenty-three (23) years when he
enumerated in the Acknowledgement of Participating started working with respondent as truck helper. How can we
Capital. entertain in our mind that a twenty-three (23) year old man, working
as a truck helper, be considered an industrial partner. Hence we rule
In Villareal v. Ramirez,[41] the Court held that since a partnership is a that complainant was only an employee, not a partner of respondents
separate juridical entity, the shares to be paid out to the partners is from the time complainant started working for respondent.
necessarily limited only to its total resources, to wit:
As found by the appellate court, petitioners owned and operated a
trucking business since the 1950s and by their own allegations, they
Since it is the partnership, as a separate and distinct entity, that must determined private respondent’s wages and rest day.20 Records of the
refund the shares of the partners, the amount to be refunded is case show that private respondent actually engaged in work as an
necessarily limited to its total resources. In other words, it can only employee. During the entire course of his employment he did not have
pay out what it has in its coffers, which consists of all its the freedom to determine where he would go, what he would do, and
assets. However, before the partners can be paid their shares, the how he would do it. He merely followed instructions of petitioners and
creditors of the partnership must first be compensated. After all the
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
3
was content to do so, as long as he was paid his wages. Indeed, said XXXX
the CA, private respondent had worked as a truck helper and driver
of petitioners not for his own pleasure but under the latter’s control.
FOURTH: That all general expense[s] and all cost[s] involved in the
sub-division project should be paid by the FIRST PARTY, exclusively
Article 176721 of the Civil Code states that in a contract of partnership and all the expenses will not be deducted from the sales after the
two or more persons bind themselves to contribute money, property development of the sub-division project.
or industry to a common fund, with the intention of dividing the profits
among themselves.22 Not one of these circumstances is present in this
FIFTH: That the sales of the sub-divided lots will be divided into SIXTY
case. No written agreement exists to prove the partnership between
PERCENTUM 60% for the SECOND PARTY and FORTY PERCENTUM
the parties. Private respondent did not contribute money, property or
40% for the FIRST PARTY, and additional profits or whatever income
industry for the purpose of engaging in the supposed business. There
deriving from the sales will be divided equally according to the . . .
is no proof that he was receiving a share in the profits as a matter of
percentage [agreed upon] by both parties.
course, during the period when the trucking business was under
operation. Neither is there any proof that he had actively participated
in the management, administration and adoption of policies of the ISSUE: Whether or not PARTNERSHIP exists between parties.
business. Thus, the NLRC and the CA did not err in reversing the
finding of the Labor Arbiter that private respondent was an industrial HELD: YES.
partner from 1958 to 1994.
A reading of the terms embodied in the Agreement indubitably shows
On this point, we affirm the findings of the appellate court and the the existence of a partnership pursuant to Article 1767 of the Civil
NLRC. Private respondent Jaime Sahot was not an industrial partner Code, which provides:
but an employee of petitioners from 1958 to 1994. The existence of
an employer-employee relationship is ultimately a question of Art. 1767. By the contract of partnership two or
fact23 and the findings thereon by the NLRC, as affirmed by the Court more persons bind themselves to contribute
of Appeals, deserve not only respect but finality when supported by money, property, or industry to a common fund,
substantial evidence. Substantial evidence is such amount of relevant with the intention of dividing the profits among
evidence which a reasonable mind might accept as adequate to justify themselves.
a conclusion.

Under the above-quoted Agreement, petitioners would contribute

Time and again this Court has said that "if doubt exists between the property to the partnership in the form of land which was to be
evidence presented by the employer and the employee, the scales of developed into a subdivision; while respondent would give, in addition
justice must be tilted in favor of the latter."25 Here, we entertain no to his industry, the amount needed for general expenses and other
doubt. Private respondent since the beginning was an employee of, costs. Furthermore, the income from the said project would be divided
not an industrial partner in, the trucking business. according to the stipulated percentage. Clearly, the contract
manifested the intention of the parties to form a partnership. 11
Torres vs. Court of Appeals
G.R. No. 134559, December 9, 1999 It should be stressed that the parties implemented the contract. Thus,
petitioners transferred the title to the land to facilitate its use in the
name of the respondent. On the other hand, respondent caused the
“Courts may not extricate parties from the necessary consequences subject land to be mortgaged, the proceeds of which were used for
of their acts. That the terms of a contract turn out to be financially the survey and the subdivision of the land. As noted earlier, he
disadvantageous to them will not relieve them of their obligations developed the roads, the curbs and the gutters of the subdivision and
therein. The lack of an inventory of real property will not ipso entered into a contract to construct low-cost housing units on the
facto release the contracting partners from their respective property.
obligations to each other arising from acts executed in accordance
with their agreement.”
Respondent's actions clearly belie petitioners' contention that he
made no contribution to the partnership. Under Article 1767 of the
FACTS: Sisters Antonia Torres and Emeteria Baring, herein Civil Code, a partner may contribute not only money or property, but
petitioners, entered into a "joint venture agreement" with Respondent also industry.
Manuel Torres for the development of a parcel of land into a
subdivision. Pursuant to the contract, they executed a Deed of Sale
covering the said parcel of land in favor of respondent, who then had Lim vs. Phil. Fishing Gear Corp.
it registered in his name. By mortgaging the property, respondent G.R. No. 136448, November 3, 1999
obtained from Equitable Bank a loan of P40,000 which, under the Joint
Venture Agreement, was to be used for the development of the “A partnership may be deemed to exist among parties who agree to
subdivision. 4 All three of them also agreed to share the proceeds from borrow money to pursue a business and to divide the profits or losses
the sale of the subdivided lots. that may arise therefrom, even if it is shown that they have not
contributed any capital of their own to a "common fund." Their
The project did not push through, and the land was subsequently contribution may be in the form of credit or industry, not necessarily
foreclosed by the bank. cash or fixed assets. Being partner, they are all liable for debts
incurred by or on behalf of the partnership. The liability for a contract
entered into on behalf of an unincorporated association or ostensible
Terms of Agreement:
corporation may lie in a person who may not have directly transacted
on its behalf, but reaped benefits from that contract.”
This AGREEMENT, is made and entered into at Cebu City, Philippines,
this 5th day of March, 1969, by and between MR. MANUEL R. TORRES,
FACTS: On behalf of "Ocean Quest Fishing Corporation," Antonio
. . . the FIRST PARTY, likewise, MRS. ANTONIA B. TORRES, and MISS
Chua and Peter Yao entered into a Contract dated February 7, 1990,
EMETERIA BARING, . . . the SECOND PARTY:
for the purchase of fishing nets of various sizes from the Philippine
Fishing Gear Industries, Inc. (herein respondent). They claimed that
That, whereas, the SECOND PARTY, voluntarily offered the FIRST they were engaged in a business venture with Petitioner Lim Tong
PARTY, this property located at Lapu-Lapu City, Island of Mactan, Lim, who however was not a signatory to the agreement. The total
under Lot No. 1368 covering TCT No. T-0184 with a total area of price of the nets amounted to P532,045. Four hundred pieces of floats
17,009 square meters, to be sub-divided by the FIRST PARTY; worth P68,000 were also sold to the Corporation. 4
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
4
The buyers, however, failed to pay for the fishing nets and the floats; money, property, or industry to a common fund,
hence, private respondents filed a collection suit against Chua, Yao with the intention of dividing the profits among
and Petitioner Lim Tong Lim with a prayer for a writ of preliminary themselves.
attachment. The suit was brought against the three in their capacities
as general partners, on the allegation that "Ocean Quest Fishing
Specifically, both lower courts ruled that a partnership among the
Corporation" was a nonexistent corporation as shown by a
three existed based on the following factual findings: 15
Certification from the Securities and Exchange Commission. 5 On
September 20, 1990, the lower court issued a Writ of Preliminary
Attachment, which the sheriff enforced by attaching the fishing nets (1) That Petitioner Lim Tong Lim requested Peter Yao who
on board F/B Lourdes which was then docked at the Fisheries Port, was engaged in commercial fishing to join him, while
Navotas, Metro Manila. Antonio Chua was already Yao's partner;

Chua filed a Manifestation admitting his liability and Peter Yao filed an (2) That after convening for a few times, Lim, Chua, and
Answer, after which he was deemed to have waived his right to cross- Yao verbally agreed to acquire two fishing boats, the FB
examine witnesses and to present evidence on his behalf, because of Lourdes and the FB Nelson for the sum of P3.35 million;
his failure to appear in subsequent hearings. Lim Tong Lim, on the
other hand, filed an Answer with Counterclaim and Crossclaim and (3) That they borrowed P3.25 million from Jesus Lim,
moved for the lifting of the Writ of Attachment. brother of Petitioner Lim Tong Lim, to finance the venture.

On November 18, 1992, the trial court rendered its Decision, ruling (4) That they bought the boats from CMF Fishing
that Philippine Fishing Gear Industries was entitled to the Writ of Corporation, which executed a Deed of Sale over these two
Attachment and that Chua, Yao and Lim, as general partners, were (2) boats in favor of Petitioner Lim Tong Lim only to serve
jointly liable to pay respondent. 8 as security for the loan extended by Jesus Lim;

The trial court ruled that a partnership among Lim, Chua and Yao (5) That Lim, Chua and Yao agreed that the refurbishing,
existed based (1) on the testimonies of the witnesses presented and re-equipping, repairing, dry docking and other expenses for
(2) on a Compromise Agreement executed by the three 9 in Civil Case the boats would be shouldered by Chua and Yao;
No. 1492-MN which Chua and Yao had brought against Lim in the RTC
of Malabon, Branch 72. The Compromise Agreement provided:
(6) That because of the "unavailability of funds," Jesus Lim
again extended a loan to the partnership in the amount of
a.That the parties plaintiffs & Lim Tong Lim agree to have P1 million secured by a check, because of which, Yao and
the four (4) vessels sold in the amount of P5,750,000.00 Chua entrusted the ownership papers of two other boats,
including the fishing net. This P5,750,000.00 shall be Chua's FB Lady Anne Mel and Yao's FB Tracy to Lim Tong
applied as full payment for P3,250,000.00 in favor of JL Lim.
Holdings Corporation and/or Lim Tong Lim;

(7) That in pursuance of the business agreement, Peter Yao

xxxx and Antonio Chua bought nets from Respondent Philippine
Fishing Gear, in behalf of "Ocean Quest Fishing
The trial court noted that the Compromise Agreement was silent as to Corporation," their purported business name.
the nature of their obligations, but that joint liability could be
presumed from the equal distribution of the profit and loss. 21 (8) That subsequently, Civil Case No. 1492-MN was filed in
the Malabon RTC, Branch 72 by Antonio Chua and Peter
Lim appealed to the Court of Appeals (CA) which, as already stated, Yao against Lim Tong Lim for (a) declaration of nullity of
affirmed the RTC. commercial documents; (b) reformation of contracts; (c)
declaration of ownership of fishing boats; (4) injunction;
and (e) damages.
In arguing that he should not be held liable for the equipment
purchased from respondent, petitioner controverts the CA finding that
a partnership existed between him, Peter Yao and Antonio Chua. He (9) That the case was amicably settled through a
asserts that the CA based its finding on the Compromise Agreement Compromise Agreement executed between the parties-
alone. Furthermore, he disclaims any direct participation in the litigants the terms of which are already enumerated above.
purchase of the nets, alleging that the negotiations were conducted
by Chua and Yao only, and that he has not even met the From the factual findings of both lower courts, it is clear that Chua,
representatives of the respondent company. Petitioner further argues Yao and Lim had decided to engage in a fishing business, which they
that he was a lessor, not a partner, of Chua and Yao, for the "Contract started by buying boats worth P3.35 million, financed by a loan
of Lease " dated February 1, 1990, showed that he had merely leased secured from Jesus Lim who was petitioner's brother. In their
to the two the main asset of the purported partnership — the fishing Compromise Agreement, they subsequently revealed their intention
boat F/B Lourdes. The lease was for six months, with a monthly rental to pay the loan with the proceeds of the sale of the boats, and to
of P37,500 plus 25 percent of the gross catch of the boat. divide equally among them the excess or loss. These boats, the
purchase and the repair of which were financed with borrowed
ISSUE: 1) Whether or not Partnership exists. money, fell under the term "common fund" under Article 1767. The
2) Whether Petitioner is merely a lessor. contribution to such fund need not be cash or fixed assets; it could be
an intangible like credit or industry. That the parties agreed that any
HELD: loss or profit from the sale and operation of the boats would be divided
equally among them also shows that they had indeed formed a
1. Yes partnership.

We are not persuaded by the arguments of petitioner. The facts as Moreover, it is clear that the partnership extended not only to the
found by the two lower courts clearly showed that there existed a purchase of the boat, but also to that of the nets and the floats. The
partnership among Chua, Yao and him, pursuant to Article 1767 of fishing nets and the floats, both essential to fishing, were obviously
the Civil Code which provides: acquired in furtherance of their business. It would have been
inconceivable for Lim to involve himself so much in buying the boat
Art. 1767 — By the contract of partnership, two but not in the acquisition of the aforesaid equipment, without which
or more persons bind themselves to contribute the business could not have proceeded.
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
5
Given the preceding facts, it is clear that there was, among petitioner, taxpayer cannot be located at the address given in the information
Chua and Yao, a partnership engaged in the fishing business. They return filed." Hence, this Petition for Review before us.
purchased the boats, which constituted the main assets of the
partnership, and they agreed that the proceeds from the sales and ISSUE: Whether or not the Clearing House, acting as a mere agent
operations thereof would be divided among them. and performing strictly administrative functions, and which did not
insure or assume any risk in its own name, was a partnership or
association subject to tax as a corporation.
2. No.
HELD: No.
We are not convinced by petitioner's argument that he was merely
the lessor of the boats to Chua and Yao, not a partner in the fishing The petition is devoid of merit. We sustain the ruling of the Court of
venture. His argument allegedly finds support in the Contract of Lease Appeals that the pool is taxable as a corporation.
and the registration papers showing that he was the owner of the
boats, including F/B Lourdes where the nets were found.
Petitioners contend that the Court of Appeals erred in finding that the
pool of clearing house was an informal partnership, which was taxable
His allegation defies logic. In effect, he would like this Court to believe as a corporation under the NIRC. They point out that the reinsurance
that he consented to the sale of his own boats to pay a debt of Chua policies were written by them "individually and separately," and that
and Yao, with the excess of the proceeds to be divided among the their liability was limited to the extent of their allocated share in the
three of them. No lessor would do what petitioner did. Indeed, his original risk thus reinsured. 11 Hence, the pool did not act or earn
consent to the sale proved that there was a preexisting partnership income as a reinsurer. 12 Its role was limited to its principal function
among all three. of "allocating and distributing the risk(s) arising from the original
insurance among the signatories to the treaty or the members of the
Verily, as found by the lower courts, petitioner entered into a business pool based on their ability to absorb the risk(s) ceded[;] as well as the
agreement with Chua and Yao, in which debts were undertaken in performance of incidental functions, such as records, maintenance,
order to finance the acquisition and the upgrading of the vessels collection and custody of funds, etc." 13
which would be used in their fishing business. The sale of the boats,
as well as the division among the three of the balance remaining after Petitioners belie the existence of a partnership in this case, because
the payment of their loans, proves beyond cavil that F/B Lourdes, (1) they, the reinsurers, did not share the same risk or solidary
though registered in his name, was not his own property but an asset liability, 14 (2) there was no common fund; 15 (3) the executive board
of the partnership. It is not uncommon to register the properties of the pool did not exercise control and management of its funds,
acquired from a loan in the name of the person the lender trusts, who unlike the board of directors of a corporation; 16 and (4) the pool or
in this case is the petitioner himself. After all, he is the brother of the clearing house "was not and could not possibly have engaged in the
creditor, Jesus Lim. business of reinsurance from which it could have derived income for
itself." 17
We stress that it is unreasonable — indeed, it is absurd — for
petitioner to sell his property to pay a debt he did not incur, if the The Court is not persuaded. The opinion or ruling of the Commission
relationship among the three of them was merely that of lessor- of Internal Revenue, the agency tasked with the enforcement of tax
lessee, instead of partners. law, is accorded much weight and even finality, when there is no
showing. that it is patently wrong, 18 particularly in this case where
the findings and conclusions of the internal revenue commissioner
Afisco Insurance vs. Court of Appeals
were subsequently affirmed by the CTA, a specialized body created
G.R. No. 112675, January 25, 1999
for the exclusive purpose of reviewing tax cases, and the Court of
Appeals.
FACTS: The petitioners are 41 non-life insurance corporations,
organized and existing under the laws of the Philippines. Upon
issuance by them of Erection, Machinery Breakdown, Boiler Explosion This Court rules that the Court of Appeals, in affirming the CTA which
and Contractors' All Risk insurance policies, the petitioners on August had previously sustained the internal revenue commissioner,
1, 1965 entered into a Quota Share Reinsurance Treaty and a Surplus committed no reversible error. Section 24 of the NIRC, as worded in
Reinsurance Treaty with the Munchener Ruckversicherungs- the year ending 1975, provides:
Gesselschaft (hereafter called Munich), a non-resident foreign
insurance corporation. The reinsurance treaties required petitioners Sec. 24. Rate of tax on corporations. — (a) Tax
to form a [p]ool. Accordingly, a pool composed of the petitioners was on domestic corporations. — A tax is hereby
formed on the same day. imposed upon the taxable net income received
during each taxable year from all sources by
On April 14, 1976, the pool of machinery insurers submitted a every corporation organized in, or existing under
financial statement and filed an "Information Return of Organization the laws of the Philippines, no matter how
Exempt from Income Tax" for the year ending in 1975, on the basis created or organized, but not including duly
of which it was assessed by the Commissioner of Internal Revenue registered general co-partnership (compañias
deficiency corporate taxes in the amount of P1,843,273.60, and colectivas), general professional partnerships,
withholding taxes in the amount of P1,768,799.39 and P89,438.68 private educational institutions, and building and
on dividends paid to Munich and to the petitioners, respectively. loan associations . . . .
These assessments were protested by the petitioners through its
auditors Sycip, Gorres, Velayo and Co. Ineludibly, the Philippine legislature included in the concept of
corporations those entities that resembled them such as unregistered
On January 27, 1986, the Commissioner of Internal Revenue denied partnerships and associations. Parenthetically, the NIRC's inclusion of
the protest and ordered the petitioners, assessed as "Pool of such entities in the tax on corporations was made even clearer by the
Machinery Insurers," to pay deficiency income tax, interest, and with tax Reform Act of 1997, 21 which amended the Tax Code. Pertinent
[h]olding tax. provisions of the new law read as follows:

The CA ruled in the main that the pool of machinery insurers was a Sec. 22. — Definition. — When used in this Title:
partnership taxable as a corporation, and that the latter's collection of
premiums on behalf of its members, the ceding companies, was xxx xxx xxx
taxable income. It added that prescription did not bar the Bureau of
Internal Revenue (BIR) from collecting the taxes due, because "the
(B) The term "corporation" shall include partnerships, no
matter how created or organized, joint-stock companies, joint
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
6
accounts (cuentas en participacion), associations, or insurance Philex Mining vs. CIR
companies, but does not include general professional partnerships G.R. No. 148187, Apri 16, 2008
[or] a joint venture or consortium formed for the purpose of
undertaking construction projects or engaging in petroleum, coal,
geothermal and other energy operations pursuant to an operating or FACTS: On April 16, 1971, petitioner Philex Mining Corporation
consortium agreement under a service contract without the (Philex Mining), entered into an agreement4 with Baguio Gold Mining
Government. "General professional partnerships" are partnerships Company ("Baguio Gold") for the former to manage and operate the
formed by persons for the sole purpose of exercising their common latter’s mining claim, known as the Sto. Nino mine, located in Atok
profession, no part of the income of which is derived from engaging and Tublay, Benguet Province. The parties’ agreement was
in any trade or business. denominated as "Power of Attorney".

xxx xxx xxx In the course of managing and operating the project, Philex Mining
made advances of cash and property in accordance with paragraph 5
of the agreement. However, the mine suffered continuing losses over
Thus, the Court in Evangelista v. Collector of Internal Revenue 22 held the years which resulted to petitioner’s withdrawal as manager of the
that Section 24 covered these unregistered partnerships and even mine on January 28, 1982 and in the eventual cessation of mine
associations or joint accounts, which had no legal personalities apart operations on February 20, 1982.
from their individual members.

The parties then ascertained that Baguio Gold had a remaining

Art. 1767 of the Civil Code recognizes the creation of a contract of outstanding indebtedness to petitioner in the amount of
partnership when "two or more persons bind themselves to contribute P114,996,768.00. Subsequently, petitioner wrote off in its 1982 books
money, property, or Industry to a common fund, with the intention of of account the remaining outstanding indebtedness of Baguio Gold by
dividing the profits among themselves." 25 Its requisites are: "(1) charging P112,136,000.00 to allowances and reserves that were set
mutual contribution to a common stock, and (2) a joint interest in the up in 1981 and P2,860,768.00 to the 1982 operations.
profits." 26 In other words, a partnership is formed when persons
contract "to devote to a common purpose either money, property, or
labor with the intention of dividing the profits between In its 1982 annual income tax return, petitioner deducted from its
themselves." 27 Meanwhile, an association implies associates who gross income the amount of P112,136,000.00 as "loss on settlement
enter into a "joint enterprise . . . for the transaction of business." 28 of receivables from Baguio Gold against reserves and
allowances."9 However, the Bureau of Internal Revenue (BIR)
disallowed the amount as deduction for bad debt and assessed
In the case before us, the ceding companies entered into a Pool petitioner a deficiency income tax of P62,811,161.39.
Agreement 29 or an association 30 that would handle all the insurance
businesses covered under their quota-share reinsurance treaty 31 and
surplus reinsurance treaty32 with Munich. The following unmistakably Petitioner protested before the BIR arguing that the deduction must
indicates a partnership or an association covered by Section 24 of the be allowed since all requisites for a bad debt deduction were satisfied.
NIRC: Petitioner emphasized that the debt arose out of a valid management
contract it entered into with Baguio Gold. The bad debt deduction
represented advances made by petitioner which, pursuant to the
(1) The pool has a common fund, consisting of money and other management contract, formed part of Baguio Gold’s "pecuniary
valuables that are deposited in the name and credit of the obligations" to petitioner
pool. 33 This common fund pays for the administration and operation
expenses of the pool. 24
On October 28, 1994, the BIR denied petitioner’s protest for lack of
legal and factual basis.
(2) The pool functions through an executive board, which resembles
the board of directors of a corporation, composed of one
representative for each of the ceding companies. 35 On appeal, the CTA rejected petitioner’s assertion that the advances
it made for the Sto. Nino mine were in the nature of a loan. It instead
characterized the advances as petitioner’s investment in a
(3) True, the pool itself is not a reinsurer and does not issue any partnership with Baguio Gold for the development and
insurance policy; however, its work is indispensable, beneficial and exploitation of the Sto. Nino mine. The CTA held that the "Power
economically useful to the business of the ceding companies and of Attorney" executed by petitioner and Baguio Gold was actually a
Munich, because without it they would not have received their partnership agreement. Since the advanced amount partook of the
premiums. The ceding companies share "in the business ceded to the nature of an investment, it could not be deducted as a bad debt from
pool" and in the "expenses" according to a "Rules of Distribution" petitioner’s gross income.
annexed to the Pool Agreement. 36 Profit motive or business is,
therefore, the primordial reason for the pool's formation. As aptly
found by the CTA: The Court of Appeals affirmed the decision of the CTA.

Petitioner asserted that by Paragraph 5.c. there is only agency:

. . . The fact that the pool does not retain any profit or
income does not obliterate an antecedent fact, that of the (c) The cash and property shall not thereafter be withdrawn
pool being used in the transaction of business for profit. It from the Sto. Nino PROJECT until termination of this
is apparent, and petitioners admit, that their association or Agency.
coaction was indispensable [to] the transaction of the
business, . . . If together they have conducted business, ISSUE: Whether or not Partnership exists.
profit must have been the object as, indeed, profit was
earned. Though the profit was apportioned among the HELD: Yes.
members, this is only a matter of consequence, as it implies
that profit actually resulted. 37
The lower courts correctly held that the "Power of Attorney" is the
instrument that is material in determining the true nature of the
The petitioners' reliance on Pascuals v. Commissioner 38 is misplaced, business relationship between petitioner and Baguio Gold. Before
because the facts obtaining therein are not on all fours with the resort may be had to the two compromise agreements, the parties’
present case. In Pascual, there was no unregistered partnership, but contractual intent must first be discovered from the expressed
merely a co-ownership which took up only two isolated language of the primary contract under which the parties’ business
transactions. 39 The Court of Appeals did not err in relations were founded. It should be noted that the compromise
applying Evangelista, which involved a partnership that engaged in a agreements were mere collateral documents executed by the parties
series of transactions spanning more than ten years, as in the case pursuant to the termination of their business relationship created
before us.
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
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under the "Power of Attorney". On the other hand, it is the latter which acquired an obligatory nature as soon as petitioner had chosen to
established the juridical relation of the parties and defined the exercise its option under paragraph 5.
parameters of their dealings with one another.
There is no merit to petitioner’s claim that the prohibition in paragraph
An examination of the "Power of Attorney" reveals that a partnership 5(c) against withdrawal of advances should not be taken as an
or joint venture was indeed intended by the parties. Under a contract indication that it had entered into a partnership with Baguio Gold; that
of partnership, two or more persons bind themselves to contribute the stipulation only showed that what the parties entered into was
money, property, or industry to a common fund, with the intention of actually a contract of agency coupled with an interest which is not
dividing the profits among themselves.15 While a corporation, like revocable at will and not a partnership.
petitioner, cannot generally enter into a contract of partnership unless
authorized by law or its charter, it has been held that it may enter into
In an agency coupled with interest, it is the agency that cannot be
a joint venture which is akin to a particular partnership:
revoked or withdrawn by the principal due to an interest of a third
party that depends upon it, or the mutual interest of both principal
The legal concept of a joint venture is of common law and agent.19 In this case, the non-revocation or non-withdrawal under
origin. It has no precise legal definition, but it has been paragraph 5(c) applies to the advances made by petitioner who is
generally understood to mean an organization formed for supposedly the agent and not the principal under the contract. Thus,
some temporary purpose. x x x It is in fact hardly it cannot be inferred from the stipulation that the parties’ relation
distinguishable from the partnership, since their elements under the agreement is one of agency coupled with an interest and
are similar – community of interest in the business, sharing not a partnership.
of profits and losses, and a mutual right of control. x x x
The main distinction cited by most opinions in common law
It should be stressed that the main object of the "Power of Attorney"
jurisdictions is that the partnership contemplates a general
was not to confer a power in favor of petitioner to contract with third
business with some degree of continuity, while the joint
persons on behalf of Baguio Gold but to create a business relationship
venture is formed for the execution of a single transaction,
between petitioner and Baguio Gold, in which the former was to
and is thus of a temporary nature. x x x This observation is
manage and operate the latter’s mine through the parties’ mutual
not entirely accurate in this jurisdiction, since under the Civil
contribution of material resources and industry. The essence of an
Code, a partnership may be particular or universal, and a
agency, even one that is coupled with interest, is the agent’s ability
particular partnership may have for its object a specific
to represent his principal and bring about business relations between
undertaking. x x x It would seem therefore that under
the latter and third persons.20 Where representation for and in behalf
Philippine law, a joint venture is a form of partnership and
of the principal is merely incidental or necessary for the proper
should be governed by the law of partnerships. The
discharge of one’s paramount undertaking under a contract, the latter
Supreme Court has however recognized a distinction
may not necessarily be a contract of agency, but some other
between these two business forms, and has held that
agreement depending on the ultimate undertaking of the parties.21
although a corporation cannot enter into a partnership
contract, it may however engage in a joint venture with
others. x x x (Citations omitted) 16 In this case, the totality of the circumstances and the stipulations in
the parties’ agreement indubitably lead to the conclusion that a
partnership was formed between petitioner and Baguio Gold.
Perusal of the agreement denominated as the "Power of Attorney"
indicates that the parties had intended to create a partnership and
establish a common fund for the purpose. They also had a joint Saludo vs. PNB
interest in the profits of the business as shown by a 50-50 sharing in G.R. No. 193138, August 20, 2018
the income of the mine.

In this petition, we emphasize that a partnership for the practice of

Under the "Power of Attorney", petitioner and Baguio Gold undertook law, constituted in accordance with the Civil Code provisions on
to contribute money, property and industry to the common fund partnership, acquires juridical personality by operation of law. Having
known as the Sto. Niño mine.17 In this regard, we note that there is a a juridical personality distinct and separate from its partners, such
substantive equivalence in the respective contributions of the parties partnership is the real party-in-interest in a suit brought in connection
to the development and operation of the mine. Pursuant to with a contract entered into in its name and by a person authorized
paragraphs 4 and 5 of the agreement, petitioner and Baguio Gold to act on its behalf.
were to contribute equally to the joint venture assets under their
respective accounts. Baguio Gold would contribute P11M under its
owner’s account plus any of its income that is left in the project, in FACTS: On June 11, 1998, SAFA Law Office entered into a Contract
addition to its actual mining claim. Meanwhile, petitioner’s of Lease5 with PNB, whereby the latter agreed to lease 632 square
contribution would consist of its expertise in the management and meters of the second floor of the PNB Financial Center Building in
operation of mines, as well as the manager’s account which is Quezon City for a period of three years.
comprised of P11M in funds and property and
petitioner’s "compensation" as manager that cannot be paid in On August 1, 2001, the Contract of Lease expired.8 According to PNB,
cash. SAFA Law Office continued to occupy the leased premises until
February 2005, but discontinued paying its monthly rental obligations
However, petitioner asserts that it could not have entered into a after December 2002.9 Consequently, PNB sent a demand letter and
partnership agreement with Baguio Gold because it did not "bind" later made a final demand for SAFA Law Office to pay its outstanding
itself to contribute money or property to the project; that under rental obligations in the amount of ₱25,587,838.09.
paragraph 5 of the agreement, it was only optional for petitioner to
transfer funds or property to the Sto. Niño project " whenever the On September 1, 2006, Saludo, in his capacity as managing partner
MANAGERS shall deem it necessary and convenient in connection with of SAFA Law Office, filed an amended complaint1 for accounting
the MANAGEMENT of the STO. NIÑO MINE."18 and/or recomputation of unpaid rentals and damages against PNB in
relation to the Contract of Lease.
The wording of the parties’ agreement as to petitioner’s contribution
to the common fund does not detract from the fact that petitioner On October 4, 2006, PNB filed a motion to include an indispensable
transferred its funds and property to the project as specified in party as plaintiff, praying that Saludo be ordered to amend anew his
paragraph 5, thus rendering effective the other stipulations of the complaint to include SAFA Law Office as principal plaintiff. PNB argued
contract, particularly paragraph 5(c) which prohibits petitioner from that the lessee in the Contract of Lease is not Saludo but SAFA Law
withdrawing the advances until termination of the parties’ business Office, and that Saludo merely signed the Contract of Lease as the
relations. As can be seen, petitioner became bound by its managing partner of the law firm. Thus, SAFA Law Office must be
contributions once the transfers were made. The contributions
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
8
joined as a plaintiff in the complaint because it is considered an instrument, which must be recorded in the Office of the Securities and
indispensable party under Section 7, Rule 3 of the Rules of Court. Exchange Commission.

On October 13, 2006, PNB filed its answer. By way of compulsory xx xx

counterclaim, it sought payment from SAFA Law Office in the sum of
₱25,587,838.09, representing overdue rentals.21 PNB argued that as
The other provisions of the Articles of Partnership also positively
a matter of right and equity, it can claim that amount from SAFA Law
identify SAFA Law Office as a partnership. It constantly used the
Office in solidum with Saludo.
words "partners" and "partnership." It designated petitioner Saludo
as managing partner,48 and Attys. Ruben E. Agpalo, Filemon L.
On January 11, 2007, the RTC issued an Omnibus Order denying Fernandez, and Amado D. Aquino as industrial partners.49 It also
PNB's motion to include an indispensable party as plaintiff and provided for the term of the partnership,50 distribution of net profits
granting Saludo's motion to dismiss counterclaims. and losses, and management of the firm in which "the partners shall
have equal interest in the conduct of [its] affairs."51 Moreover, it
provided for the cause and manner of dissolution of the
PNB filed its motion for reconsideration26 dated February 5, 2007,
partnership.52 These provisions would not have been necessary if
alleging that SAFA Law Office should be included as a co-plaintiff
what had been established was a sole proprietorship. Indeed, it may
because it is the principal party to the contract of lease, the one that
only be concluded from the circumstances that, for all intents and
occupied the leased premises, and paid the monthly rentals and
purposes, SAFA Law Office is a partnership created and organized in
security deposit. In other words, it was the main actor and direct
accordance with the Civil Code provisions on partnership.
beneficiary of the contract.

Saludo asserts that SAFA Law Office is a sole proprietorship on the

On appeal, the CA held that Saludo is estopped from claiming that
basis of the MOU executed by the partners of the firm. The MOU
SAFA Law Office is his single proprietorship. Under the doctrine of
states:
estoppel, an admission or representation is rendered conclusive upon
the person making it, and cannot be denied or disproved as against
the person relying thereon. Here, SAFA Law Office was the one that xxxxxx
entered into the lease contract and not Saludo. In fact, the latter
signed the contract as the firm's managing partner. The firm is also
a) That partners R. E. Agpalo, F. L. Fernandez and A. D.
registered as a partnership with the Securities and Exchange
Aquino shall not in any way be liable for any loss or liability
Commission (SEC).
that may be incurred by the law firm in the course of its
operation;
ISSUE: Whether or not SAFA Law Office is a partnership.
b) That all remaining assets upon dissolution shall accrue
HELD: Yes. exclusively to A. G. Saludo, Jr. and all liabilities shall be
solely for his account.
Contrary to Saludo's submission, SAFA Law Office is a partnership and
not a single proprietorship. xxxxxx

Article 1767 of the Civil Code provides that by a contract of The foregoing evinces the parties' intention to entirely shift any
partnership, two or more persons bind themselves to contribute liability that may be incurred by SAFA Law Office in the course of its
money, property, or industry to a common fund, with the intention of operation to Saludo, who shall also receive all the remaining assets of
dividing the profits among themselves. Two or more persons may also the firm upon its dissolution. This MOU, however, does not serve to
form a partnership for the exercise of a profession. Under Article convert SAFA Law Office into a sole proprietorship. As discussed, SAFA
1771, a partnership may be constituted in any form, except where Law Office was manifestly established as a partnership based on the
immovable property or real rights are contributed thereto, in which Articles of Partnership. The MOU, from its tenor, reinforces this fact.
case a public instrument shall be necessary. Article 1784, on the other It did not change the nature of the organization of SAFA Law Office
hand, provides that a partnership begins from the moment of the but only excused the industrial partners from liability.
execution of the contract, unless it is otherwise stipulated.
The law, in its wisdom, recognized the possibility that partners in a
Here, absent evidence of an earlier agreement, SAFA Law Office was partnership may decide to place a limit on their individual
constituted as a partnership at the time its partners signed the Articles accountability. Consequently, to protect third persons dealing with the
of Partnership45 wherein they bound themselves to establish a partnership, the law provides a rule, embodied in Article 1816 of the
partnership for the practice of law, contribute capital and industry for Civil Code, which states:
the purpose, and receive compensation and benefits in the course of
its operation. The opening paragraph of the Articles of Partnership Art. 1816. All partners, including industrial ones, shall be liable pro
reveals the unequivocal intention of its signatories to form a rata with all their property and after all the partnership assets have
partnership, to wit: been exhausted, for the contracts which may be entered into in the
name and for the account of the partnership, under its signature and
WE, the undersigned ANICETO G. SALUDO, JR., RUBEN E. AGPALO, by a person authorized to act for the partnership. However, any
FILEMON L. FERNANDEZ, AND AMADO D. AQUINO, all of legal age, partner may enter into a separate obligation to perform a partnership
Filipino citizens and members of the Philippine Bar, have this day contract.
voluntarily associated ourselves for the purpose of forming a
partnership engaged in the practice of law, effective this date, under The foregoing provision does not prevent partners from agreeing to
the terms and conditions hereafter set forth, and subject to the limit their liability, but such agreement may only be valid as among
provisions of existing laws[.]46 them. Thus, Article 1817 of the Civil Code provides:

The subsequent registration of the Articles of Partnership with the Art. 1817. Any stipulation against the liability laid down in the
SEC, on the other hand, was made in compliance with Article 1772 of preceding article shall be void, except as among the partners.
the Civil Code, since the initial capital of the partnership was
₱500,000.00.47 Said provision states:
The MOU is an agreement forged under the foregoing prov1s1on.
Consequently, the sole liability being undertaken by Saludo serves to
Art. 1772. Every contract of partnership having a capital of Three bind only the parties to the MOU, but never third persons like PNB.
thousand pesos or more, in money or property, shall appear in a public
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
9
Considering that the MOU is sanctioned by the law on partnership, it interest in the case cannot be executed. 8 Hence, a complaint filed
cannot change the nature of a duly-constituted partnership. Hence, against such a person should be dismissed for failure to state a cause
we cannot sustain Saludo's position that SAFA Law Office is a sole of action. 9
proprietorship.
Under Art. 1768 of the Civil Code, a partnership "has a juridical
personality separate and distinct from that of each of the partners."
Article 1768 The partners cannot be held liable for the obligations of the
partnership unless it is shown that the legal fiction of a different
juridical personality is being used for fraudulent, unfair, or illegal
Aguila vs. Court of Appeals purposes. 10 In this case, private respondent has not shown that A.C.
G.R. No. 127347, November 25, 1999 Aguila & Sons, Co., as a separate juridical entity, is being used for
fraudulent, unfair, or illegal purposes. Moreover, the title to the
FACTS: Petitioner is the manager of A.C. Aguila & Sons, Co., a subject property is in the name of A.C. Aguila & Sons, Co. and the
partnership engaged in lending activities. Private respondent and her Memorandum of Agreement was executed between private
late husband, Ruben M. Abrogar, were the registered owners of a respondent, with the consent of her late husband, and A.C. Aguila &
house and lot, covered by Transfer Certificate of Title No. 195101. On Sons, Co., represented by petitioner. Hence, it is the partnership, not
April 18, 1991, private respondent, with the consent of her late its officers or agents, which should be impleaded in any litigation
husband, and A.C. Aguila & Sons, Co., represented by petitioner, involving property registered in its name. A violation of this rule will
entered into a Memorandum of Agreement, which provided: result in the dismissal of the complaint. 11 We cannot understand why
both the Regional Trial Court and the Court of Appeals sidestepped
this issue when it was squarely raised before them by petitioner.
(1) That the SECOND PARTY [A.C. Aguila & Sons,
Co.] shall buy the above-described property from
the FIRST PARTY [Felicidad S. Vda. de Abrogar], Our conclusion that petitioner is not the real party in interest against
and pursuant to this agreement, a Deed of whom this action should be prosecuted makes it unnecessary to
Absolute Sale shall be executed by the FIRST discuss the other issues raised by him in this appeal.
PARTY conveying the property to the SECOND
PARTY for and in consideration of the sum of Two Villareal vs. Ramirez
Hundred Thousand Pesos (P200,000.00), G.R. No. 144214, July 14, 2003
Philippine Currency;

“A share in a partnership can be returned only after the completion of

On the same day, April 18, 1991, the parties likewise executed a deed
the latter's dissolution, liquidation and winding up of the business.”
of absolute sale, 3 dated June 11, 1991, wherein private respondent,
with the consent of her late husband, sold the subject property to A.C.
Aguila & Sons, Co., represented by petitioner, for P200,000,00. FACTS:

On July 25, 1984, Luzviminda J. Villareal, Carmelito Jose and Jesus

Private respondent failed to redeem the property within the 90-day
Jose formed a partnership with a capital of P750,000 for the operation
period as provided in the Memorandum of Agreement. Hence,
of a restaurant and catering business under the name "Aquarius Food
pursuant to the special power of attorney mentioned above, petitioner
House and Catering Services."5 Villareal was appointed general
caused the cancellation of TCT No. 195101 and the issuance of a new
manager and Carmelito Jose, operations manager.
certificate of title in the name of A.C. Aguila and Sons, Co.

Respondent Donaldo Efren C. Ramirez joined as a partner in the

Private respondent then filed a petition for declaration of nullity of a
business on September 5, 1984. His capital contribution of P250,000
deed of sale with the Regional Trial Court, Branch 273, Marikina,
was paid by his parents, Respondents Cesar and Carmelita Ramirez.6
Metro Manila on December 4, 1993. She alleged that the signature of
her husband on the deed of sale was a forgery because he was
already dead when the deed was supposed to have been executed on In the same month, without prior knowledge of respondents,
June 11, 1991. petitioners closed down the restaurant, allegedly because of increased
rental. The restaurant furniture and equipment were deposited in the
respondents' house for storage.8
It appears, however, that private respondent had filed a criminal
complaint for falsification against petitioner with the Office of the
Prosecutor of Quezon City which was dismissed in a resolution, dated On March 1, 1987, respondent spouses wrote petitioners, saying that
February 14, 1994. they were no longer interested in continuing their partnership or in
reopening the restaurant, and that they were accepting the latter's
offer to return their capital contribution.9
On April 11, 1995, Branch 273 of RTC-Marikina rendered its decision
dismissing the criminal complaint.
Before the Regional Trial Court (RTC) of Makati, Branch 59,
respondents subsequently filed a Complaint11 dated November 10,
On appeal, the Court of Appeals reversed.
1987, for the collection of a sum of money from petitioners.

Petitioner now contends that: (1) he is not the real party in interest
In their Answer, petitioners contended that respondents had
but A.C. Aguila & Co., against which this case should have been
expressed a desire to withdraw from the partnership and had called
brought.
for its dissolution under Articles 1830 and 1831 of the Civil Code; that
respondents had been paid, upon the turnover to them of furniture
ISSUE: Whether or not is liable as partner.
and equipment worth over P400,000; and that the latter had no right
to demand a return of their equity because their share, together with
HELD: No.
the rest of the capital of the partnership, had been spent as a result
of irreversible business losses.12
Rule 3, §2 of the Rules of Court of 1964, under which the complaint
in this case was filed, provided that "every action must be prosecuted
and defended in the name of the real party in interest." A real party After trial, the RTC 17 ruled that the parties had voluntarily entered
in interest is one who would be benefited or injured by the judgment, into a partnership, which could be dissolved at any time. Petitioners
or who is entitled to the avails of the suit. 7 This ruling is now clearly intended to dissolve it when they stopped operating the
embodied in Rule 3, §2 of the 1997 Revised Rules of Civil Procedure. restaurant. It ruled for the complainant (Respondent).
Any decision rendered against a person who is not a real party in
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
10
On appeal, the CA held that, although respondents had no right to tenants; to sign all letters, contracts, etc., for and in their behalf, and
demand the return of their capital contribution, the partnership was to endorse and deposit all notes and checks for them;
nonetheless dissolved when petitioners lost interest in continuing the
restaurant business with them. Because petitioners never gave a
7. That after having bought the above-mentioned real
proper accounting of the partnership accounts for liquidation
properties the petitioners had the same rented or leases to
purposes, and because no sufficient evidence was presented the CA
various tenants;
ruled that petitioners be liable to respondents.

It further appears that on September 24, 1954 respondent Collector

ISSUE: 1) Whether petitioners are liable to Ramirez.
of Internal Revenue demanded the payment of income tax on
2) What must be returned, if any?
corporations, real estate dealer's fixed tax and corporation residence
tax for the years 1945-1949.
HELD:

1. No. Said letter of demand and corresponding assessments were delivered

to petitioners on December 3, 1954, whereupon they instituted the
present case in the Court of Tax Appeals, with a prayer that "the
Both the trial and the appellate courts found that a partnership had
decision of the respondent contained in his letter of demand dated
indeed existed, and that it was dissolved on March 1, 1987. They
September 24, 1954" be reversed, and that they be absolved from the
found that the dissolution took place when respondents informed
payment of the taxes in question, with costs against the respondent.
petitioners of the intention to discontinue it because of the former's
The Court of Tax Appeals ruled in favor of the respondent.
dissatisfaction with, and loss of trust in, the latter's management of
the partnership affairs. These findings were amply supported by the
evidence on record. Respondents consequently demanded from ISSUE: Whether petitioners are subject to the tax on corporations
petitioners the return of their one-third equity in the partnership. provided for in section 24 of Commonwealth Act. No. 466, otherwise
known as the National Internal Revenue Code.
We hold that respondents have no right to demand from petitioners
HELD: Yes.
the return of their equity share. Except as managers of the
partnership, petitioners did not personally hold its equity or assets.
With respect to the tax on corporations, the issue hinges on the
"The partnership has a juridical personality separate and distinct from
meaning of the terms "corporation" and "partnership," as used in
that of each of the partners."23 Since the capital was contributed to
section 24 and 84 of said Code, the pertinent parts of which read:
the partnership, not to petitioners, it is the partnership that must
refund the equity of the retiring partners.
SEC. 24. Rate of tax on corporations.—There shall be
levied, assessed, collected, and paid annually upon the total
2. After all the creditors have been paid, whatever is left of
net income received in the preceding taxable year from all
the partnership assets becomes available for the payment
sources by every corporation organized in, or existing under
of the partners' shares.
the laws of the Philippines, no matter how created or
organized but not including duly registered general co-
Since it is the partnership, as a separate and distinct entity, that must partnerships (compañias colectivas), a tax upon such
refund the shares of the partners, the amount to be refunded is income equal to the sum of the following: . . .
necessarily limited to its total resources. In other words, it can only
pay out what it has in its coffers, which consists of all its assets.
SEC. 84 (b). The term 'corporation' includes partnerships,
However, before the partners can be paid their shares, the creditors
no matter how created or organized, joint-stock companies,
of the partnership must first be compensated.25
joint accounts (cuentas en participacion), associations or
insurance companies, but does not include duly registered
Evidently, in the present case, the exact amount of refund equivalent general copartnerships. (compañias colectivas).
to respondents' one-third share in the partnership cannot be
determined until all the partnership assets will have been liquidated
Article 1767 of the Civil Code of the Philippines provides:
— in other words, sold and converted to cash — and all partnership
creditors, if any, paid.
By the contract of partnership two or more persons bind
themselves to contribute money, properly, or industry to a
Article 1769 common fund, with the intention of dividing the profits
among themselves.

Evangelista vs. CIR Pursuant to the article, the essential elements of a partnership are
102 Phil 140 two, namely: (a) an agreement to contribute money, property or
G.R. No. L-9996, October 15, 1957 industry to a common fund; and (b) intent to divide the profits among
the contracting parties. The first element is undoubtedly present in
FACTS: It appears from the stipulation submitted by the parties: the case at bar, for, admittedly, petitioners have agreed to, and did,
contribute money and property to a common fund. Hence, the issue
1. That the petitioners borrowed from their father the sum of narrows down to their intent in acting as they did. Upon consideration
P59,1400.00 which amount together with their personal monies was of all the facts and circumstances surrounding the case, we are fully
used by them for the purpose of buying real properties,. satisfied that their purpose was to engage in real estate transactions
for monetary gain and then divide the same among themselves,
because:
2. That petitioners bought certain properties and improvements
therein;
1. Said common fund was not something they found already
in existence. It was not property inherited by them pro
xxxx indiviso. They created it purposely. What is more
they jointly borrowed a substantial portion thereof
6. That in a document dated August 16, 1945, they appointed their in order to establish said common fund.
brother Simeon Evangelista to 'manage their properties with full
power to lease; to collect and receive rents; to issue receipts therefor; 2. They invested the same, not merely not merely in one
in default of such payment, to bring suits against the defaulting transaction, but in a series of transactions.
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
11
3. The properties were leased separately to several persons, We hold that it is error to consider the petitioners as having formed a
who, from 1945 to 1948 inclusive partnership under article 1767 of the Civil Code simply because they
allegedly contributed P178,708.12 to buy the two lots, resold the
4. Since August, 1945, the properties have been under the same and divided the profit among themselves.
management of one person, namely Simeon Evangelista,
with full power to lease, to collect rents, to issue receipts,
To regard the petitioners as having formed a taxable unregistered
to bring suits, to sign letters and contracts, and to indorse
partnership would result in oppressive taxation and confirm the
and deposit notes and checks. Thus, the affairs relative to
dictum that the power to tax involves the power to destroy. That
said properties have been handled as if the same belonged
eventuality should be obviated.
to a corporation or business and enterprise operated for
profit.
As testified by Jose Obillos, Jr., they had no such intention. They were
5. The foregoing conditions have existed for more than ten co-owners pure and simple. To consider them as partners would
(10) years, or, to be exact, over fifteen (15) years, since obliterate the distinction between a co-ownership and a partnership.
the first property was acquired, and over twelve (12) years, The petitioners were not engaged in any joint venture by reason of
since Simeon Evangelista became the manager. that isolated transaction.

6. Petitioners have not testified or introduced any evidence, Their original purpose was to divide the lots for residential purposes.
either on their purpose in creating the set up already If later on they found it not feasible to build their residences on the
adverted to, or on the causes for its continued existence. lots because of the high cost of construction, then they had no choice
They did not even try to offer an explanation therefor. but to resell the same to dissolve the co-ownership. The division of
the profit was merely incidental to the dissolution of the co-ownership
Although, taken singly, they might not suffice to establish the which was in the nature of things a temporary state.
intent necessary to constitute a partnership, the collective effect
of these circumstances is such as to leave no room for doubt on Article 1769(3) of the Civil Code provides that "the sharing of gross
the existence of said intent in petitioners herein. Only one or two returns does not of itself establish a partnership, whether or not the
of the aforementioned circumstances were present in the cases persons sharing them have a joint or common right or interest in any
cited by petitioners herein, and, hence, those cases are not in property from which the returns are derived". There must be an
point. unmistakable intention to form a partnership or joint venture.*

Obillos vs. CIR Such intent was present in Gatchalian vs. Collector of Internal
G.R. No. L-68118, October 29, 1985 Revenue, 67 Phil. 666, where 15 persons contributed small amounts
to purchase a two-peso sweepstakes ticket with the agreement that
FACTS: This case is about the income tax liability of four brothers and they would divide the prize The ticket won the third prize of P50,000.
sisters who sold two parcels of land which they had acquired from The 15 persons were held liable for income tax as an unregistered
their father. partnership.

On March 2, 1973 Jose Obillos, Sr. completed payment to Ortigas & The instant case is distinguishable from the cases where the parties
Co., Ltd. on two lots with areas of 1,124 and 963 square meters engaged in joint ventures for profit. Thus, in Oña vs.
located at Greenhills, San Juan, Rizal. The next day he transferred his
rights to his four children, the petitioners, to enable them to build their
** This view is supported by the following rulings of respondent
residences. The company sold the two lots to petitioners for
Commissioner:
P178,708.12. Presumably, the Torrens titles issued to them would
show that they were co-owners of the two lots.
Co-owership distinguished from partnership.—We find that
the case at bar is fundamentally similar to the De Leon case.
In 1974, the petitioners resold them to the Walled City Securities
Thus, like the De Leon heirs, the Longa heirs inherited the
Corporation and Olga Cruz Canda for the total sum of P313,050 (Exh.
'hacienda' in question pro-indiviso from their deceased
C and D). They derived from the sale a total profit of P134,341.88 or
parents; they did not contribute or invest additional ' capital
P33,584 for each of them. They treated the profit as a capital gain
to increase or expand the inherited properties; they merely
and paid an income tax on one-half thereof or of P16,792.
continued dedicating the property to the use to which it had
been put by their forebears; they individually reported in
In April, 1980, or one day before the expiration of the five-year their tax returns their corresponding shares in the income
prescriptive period, the Commissioner of Internal Revenue required and expenses of the 'hacienda', and they continued for
the four petitioners to pay corporate income tax on the total profit of many years the status of co-ownership in order, as
P134,336 in addition to individual income tax on their shares thereof. conceded by respondent, 'to preserve its (the 'hacienda')
He assessed P37,018 as corporate income tax, P18,509 as 50% fraud value and to continue the existing contractual relations with
surcharge and P15,547.56 as 42% accumulated interest, or a total the Central Azucarera de Bais for milling purposes. Longa
of P71,074.56. vs. Aranas, CTA Case No. 653, July 31, 1963).

Not only that. He considered the share of the profits of each petitioner All co-ownerships are not deemed unregistered
in the sum of P33,584 as a " taxable in full (not a mere capital gain of pratnership.—Co-Ownership who own properties which
which ½ is taxable) and required them to pay deficiency income taxes produce income should not automatically be considered
aggregating P56,707.20 including the 50% fraud surcharge and the partners of an unregistered partnership, or a corporation,
accumulated interest. within the purview of the income tax law. To hold
otherwise, would be to subject the income of all
The Commissioner acted on the theory that the four petitioners had co-ownerships of inherited properties to the tax on
formed an unregistered partnership or joint venture within the corporations, inasmuch as if a property does not produce
meaning of sections 24(a) and 84(b) of the Tax Code (Collector of an income at all, it is not subject to any kind of income tax,
Internal Revenue vs. Batangas Trans. Co., 102 Phil. 822). whether the income tax on individuals or the income tax on
corporation. (De Leon vs. CI R, CTA Case No. 738,
September 11, 1961, cited in Arañas, 1977 Tax Code
ISSUE: Whether or not there is partnership among the siblings. Annotated, Vol. 1, 1979 Ed., pp. 77-78).

HELD: No.
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
12
Commissioner of Internal Revenue, L-19342, May 25, 1972, 45 SCRA of all the facts and circumstances surrounding the case, we are fully
74, where after an extrajudicial settlement the co-heirs used the satisfied that their purpose was to engage in real estate transactions
inheritance or the incomes derived therefrom as a common fund to for monetary gain and then divide the same among themselves,
produce profits for themselves, it was held that they were taxable as
an unregistered partnership.
In support of the above conclusion, reference was made to the
following circumstances, namely, the common fund being created
It is likewise different from Reyes vs. Commissioner of Internal purposely not something already found in existence, the investment
Revenue, 24 SCRA 198, where father and son purchased a lot and of the same not merely in one transaction but in a series of
building, entrusted the administration of the building to an transactions; the lots thus acquired not being devoted to residential
administrator and divided equally the net income, and from purposes or to other personal uses of petitioners in that case; such
Evangelista vs. Collector of Internal Revenue, 102 Phil. 140, where properties having been under the management of one person with full
the three Evangelista sisters bought four pieces of real property which power to lease, to collect rents, to issue receipts, to bring suits, to
they leased to various tenants and derived rentals therefrom. Clearly, sign letters and contracts and to endorse notes and checks; the above
the petitioners in these two cases had formed an unregistered conditions having existed for more than 10 years since the acquisition
partnership. of the above properties; and no testimony having been introduced as
to the purpose "in creating the set up already adverted to, or on the
causes for its continued existence."11 The conclusion that emerged
In the instant case, what the Commissioner should have investigated
had all the imprint of inevitability. Thus: "Although, taken singly, they
was whether the father donated the two lots to the petitioners and
might not suffice to establish the intent necessary to constitute a
whether he paid the donor's tax (See Art. 1448, Civil Code). We are
partnership, the collective effect of these circumstances is such as to
not prejudging this matter. It might have already prescribed.
leave no room for doubt on the existence of said intent in petitioners
herein."12
Reyes vs. CIR
24 SCRA 198 It may be said that there could be a differentiation made between the
G.R. Nos. L-24020-21, July 29, 1968 circumstances above detailed and those existing in the present case.
It does not suffice though to preclude the applicability of the
Evangelista decision. Petitioners could harp on these being only one
FACTS: "On October 31, 1950, petitioners, father and son, purchased transaction. They could stress that an affidavit of one of them found
a lot and building, known as the Gibbs Building, situated at 671 in the Bureau of Internal Revenue records would indicate that their
Dasmariñas Street, Manila, for P835,000.00, of which they paid the intention was to house in the building acquired by them the respective
sum of P375,000.00, leaving a balance of P460,000.00, representing enterprises, coupled with a plan of effecting a division in 10 years. It
the mortgage obligation of the vendors with the China Banking is a little surprising then that while the purchase was made on October
Corporation, which mortgage obligations were assumed by the 31, 1950 and their brief as petitioners filed on October 20, 1965,
vendees. The initial payment of P375,000.00 was shared equally by almost 15 years later, there was no allegation that such division as
petitioners. At the time of the purchase, the building was leased to between them was in fact made. Moreover, the facts as found and as
various tenants, whose rights under the lease contracts with the submitted in the brief made clear that the building in question
original owners, the purchasers, petitioners herein, agreed to respect. continued to be leased by other parties with petitioners dividing
The administration of the building was entrusted to an administrator "equally the income ... after deducting the expenses of operation and
who collected the rents; kept its books and records and rendered maintenance ..."13 Differences of such slight significance do not call
statements of accounts to the owners; negotiated leases; made for a different ruling.
necessary repairs and disbursed payments, whenever necessary, after
approval by the owners; and performed such other functions
necessary for the conservation and preservation of the building. Bastida vs. Menzi and Co.
Petitioners divided equally the income of operation and maintenance. 58 Phil 199 (1933)
The gross income from rentals of the building amounted to about
P90,000.00 annually." FACTS: It appears from the evidence that the defendants corporation
was organized in 1921 for purpose of importing and selling general
merchandise, including fertilizers and fertilizer ingredients. It appears
From the above facts, the respondent Court of Tax Appeals applying
through John Bordman and the Menzi-Bordman Co. the good-will,
the appropriate provisions of the National Internal Revenue Code, the
trade-marks, business, and other assets of the old German firm of
first of which imposes an income tax on corporations "organized in,
Behn, Meyer & Co., Ltd., including its fertilizer business with its stocks
or existing under the laws of the Philippines, no matter how created
and trade-marks. Behn, Meyer & Co., Ltd., had owned and carried on
or organized but not including duly registered general co-partnerships
this fertilizer business from 1910 until that firm was taken over the
(companias colectivas), ...,"6 a term, which according to the second
Alien Property Custodian in 1917.
provision cited, includes partnerships "no matter how created or
organized, ...,"7 and applying the leading case of Evangelista v.
Collector of Internal Revenue,8 sustained the action of respondent The business of Menzi & Co., Inc., was divided into several different
Commissioner of Internal Revenue, but reduced the tax liability of departments, each of which was in charge of a manager, who
petitioners, as previously noted. received a fixed salary and a percentage of the profits. The fertilizer
business of Menzi & Co., Inc., was carried on in accordance with this
practice under the "Sundries Department" until July, 1923, and after
ISSUE: Whether petitioners are subject to the tax on corporations
that as a separate department.
provided for in section 24 of Commonwealth Act No. 466, otherwise
known as the National Internal Revenue Code.
In November, 1921, the plaintiff, who had had some experience in
HELD: Yes. mixing and selling fertilizer, went to see Toehl, the manager of the
sundries department of Menzi & Co., Inc., and told him that he had a
After referring to another section of the National Internal Revenue written contract with the Philippine Sugar Centrals Agency for 1,250
Code, which explicitly provides that the term corporation "includes tons of mixed fertilizers, and that he could obtain other contracts,
partnerships" and then to Article 1767 of the Civil Code of the including one from the Calamba Sugar Estates for 450 tons, but the
Philippines, defining what a contract of partnership is, the opinion he did not have the money to buy the ingredients to fill the order and
goes on to state that "the essential elements of a partnership are two, carry on the on the business. He offered to assign to Menzi & Co.,
namely: (a) an agreement to contribute money, property or industry Inc., his contract with the Philippine Sugar Centrals Agency and to
to a common fund; and (b) intent to divide the profits among the supervise the mixing of the fertilizer and to obtain other orders for
contracting parties. The first element is undoubtedly present in the fifty per cent of the net profits that Menzi & Co., might derive
case at bar, for, admittedly, petitioners have agreed to and did, therefrom. J.M. Menzi, the general manager of Menzi & Co., accepted
contribute money and property to a common fund. Hence, the issue plaintiff's offer. Plaintiff assigned to Menzi & Co., Inc., his contract
narrows down to their intent in acting as they did. Upon consideration with the Sugar Centrals Agency, and the defendant corporation
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
13
proceeded to fill the order. Plaintiff supervised the mixing of the had notified him that it would not renew it that the plaintiff began to
fertilizer. make objections.

On January 10, 1922 the defendant corporation at plaintiff's request The trial court relied on article 116 of the Code of Commerce, which
gave him the following letter, Exhibit B: provides that articles of association by which two or more persons
obligate themselves to place in a common fund any property, industry,
or any of these things, in order to obtain profit, shall be commercial,
MANILA, 10 de enero de 1922
no matter what its class may be, provided it has been established in
accordance with the provisions of this Code; but in the case at bar
Sr. FRANCISCO BASTIDA there was no common fund, that is, a fund belonging to the parties
Manila as joint owners or partners. The business belonged to Menzi & Co.,
Inc. The plaintiff was working for Menzi & Co., Inc. Instead of
MUY SR. NUESTRO: Interin formalizamos el contrato que, en receiving a fixed salary or a fixed salary and a small percentage of the
principio, tenemos convenido para la explotacion del negocio de net profits, he was to receive 35 per cent of the net profits as
abono y fertilizantes, por la presente venimos en confirmar su derecho compensation for his services. Menzi & Co., Inc., was to advanced him
de 50 por ciento de las untilidades que se deriven del contrato P300 a month on account of his participation in the profits. It will be
obtenido por Vd. de la Philippine Sugar Centrals (por 1250 tonel.) y noted that no provision was made for reimbursing Menzi & Co., Inc.,
del contrato con la Calamba Sugar Estates, asi como de cuantos in case there should be no net profits at the end of the year. It is now
contratos se cierren con definitiva de nuestro contrato mutuo, lo que well settled that the old rule that sharing profits as profits made one
formalizacion definitiva de nuestro contrato mutuo, lo que hacemos a partner is overthrown. (Mechem, second edition, p. 89.)
para garantia y seguridad de Vd.
Heirs of Kee vs Court of Appeals
MENZI & CO., 341 SCRA 740 (2000)
Por (Fdo.) W. TOEHL G.R. No. 126881, October 3, 2000

Menzi & Co., Inc., continued to carry on its fertilizer business under FACTS: Following the death of Tan Eng Kee on September 13, 1984,
this arrangement with the plaintiff. It ordered ingredients from the Matilde Abubo, the common-law spouse of the decedent, joined by
United States and other countries, and the interest on the drafts for their children Teresita, Nena, Clarita, Carlos, Corazon and Elpidio,
the purchase of these materials was changed to the business as a part collectively known as herein petitioners HEIRS OF TAN ENG KEE, filed
of the cost of the materials. suit against the decedent's brother TAN ENG LAY on February 19,
1990. The complaint,3 docketed as Civil Case No. 1983-R in the
Regional Trial Court of Baguio City was for accounting, liquidation and
On or about April 24, 1922 the net profits of the business carried on winding up of the alleged partnership formed after World War II
under the oral agreement were determined by Menzi & Co., Inc., after between Tan Eng Kee and Tan Eng Lay. On March 18, 1991, the
deducting interest charges, proportional part of warehouse rent and petitioners filed an amended complaint4 impleading private
salaries and wages, and the other expenses of said business, and the respondent herein BENGUET LUMBER COMPANY, as represented by
plaintiff was paid some twenty thousand pesos in full satisfaction of Tan Eng Lay. The amended complaint was admitted by the trial court
his share of the profits. in its Order dated May 3, 1991.

Pursuant to the aforementioned verbal agreement, confirmed by the The amended complaint principally alleged that after the second
letter, Exhibit B, the defendant corporation April 27, 1922 entered a World War, Tan Eng Kee and Tan Eng Lay, pooling their resources
written contract with the plaintiff, marked Exhibit A, which is the basis and industry together, entered into a partnership engaged in the
of the present action. business of selling lumber and hardware and construction supplies.
They named their enterprise "Benguet Lumber" which they jointly
The fertilizer business was carried on by Menzi & Co., Inc., after the managed until Tan Eng Kee's death. Petitioners herein averred that
execution of Exhibit A in practically the same manner as it was prior the business prospered due to the hard work and thrift of the alleged
thereto. The intervention of the plaintiff was limited to supervising the partners. However, they claimed that in 1981, Tan Eng Lay and his
mixing of the fertilizers in Menzi & Co.'s, Inc., bodegas. children caused the conversion of the partnership "Benguet Lumber"
into a corporation called "Benguet Lumber Company." The
incorporation was purportedly a ruse to deprive Tan Eng Kee and his
ISSUE: Whether or not Bastida was a partner. heirs of their rightful participation in the profits of the business.
Petitioners prayed for accounting of the partnership assets, and the
HELD: No. dissolution, winding up and liquidation thereof, and the equal division
of the net assets of Benguet Lumber.
We come now to a consideration of appellant's assignment of error.
After considering the evidence and the arguments of counsel, we are
unanimously of the opinion that under the facts of this case the Regional Trial Court of Baguio City declared that there is partnership
relationship established between Menzi & Co. and by the plaintiff was between Tan Eng Kee and Tan Eng Lay. On appeal, the CA reversed
to receive 35 per cent of the net profits of the fertilizer business of the lower court.
Menzi & Co., Inc., in compensation for his services of supervising the
mixing of the fertilizers. Neither the provisions of the contract ISSUE: Whether or not partnership between siblings exists.
nor the conduct of the parties prior or subsequent to its
execution justified the finding that it was a contract of co- HELD: No.
partnership. Exhibit A, as appears from the statement of facts, was
in effect a continuation of the verbal agreement between the parties,
whereby the plaintiff worked for the defendant corporation for one-
half of the net profits derived by the corporation from certain fertilizer A contract of partnership is defined by law as one where:
contracts. Plaintiff was paid his share of the profits from those
transactions after Menzi & Co., Inc., had deducted the same items of . . . two or more persons bind themselves to contribute money,
expense which he now protests. Plaintiff never made any objection to property, or industry to a common fund, with the intention of dividing
defendant's manner of keeping the accounts or to the charges. The the profits among themselves.
business was continued in the same manner under the written
agreement, Exhibit A, and for four years the plaintiff never made any
Two or more persons may also form a partnership for the
objection. On the contrary he approved and signed every year the
exercise of a profession.14
balance sheet and the profit and loss statement. It was only when
plaintiff's contract was about to expire and the defendant corporation
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
14
Thus, in order to constitute a partnership, it must be Undoubtedly, the best evidence would have been the contract of
established that (1) two or more persons bound themselves partnership itself, or the articles of partnership but there is none. The
to contribute money, property, or industry to a common alleged partnership, though, was never formally organized. In
fund, and (2) they intend to divide the profits among addition, petitioners point out that the New Civil Code was not yet in
themselves.15 The agreement need not be formally reduced effect when the partnership was allegedly formed sometime in 1945,
into writing, since statute allows the oral constitution of a although the contrary may well be argued that nothing prevented the
partnership, save in two instances: (1) when immovable parties from complying with the provisions of the New Civil Code when
property or real rights are contributed,16 and (2) when the it took effect on August 30, 1950. But all that is in the past. The net
partnership has a capital of three thousand pesos or effect, however, is that we are asked to determine whether a
more.17 In both cases, a public instrument is required.18 An partnership existed based purely on circumstantial evidence. A review
inventory to be signed by the parties and attached to the of the record persuades us that the Court of Appeals correctly
public instrument is also indispensable to the validity of the reversed the decision of the trial court. The evidence presented by
partnership whenever immovable property is contributed to petitioners falls short of the quantum of proof required to establish a
the partnership.19 partnership.

The trial court determined that Tan Eng Kee and Tan Eng Lay had Besides, it is indeed odd, if not unnatural, that despite the forty years
entered into a joint venture, which it said is akin to a particular the partnership was allegedly in existence, Tan Eng Kee never asked
partnership.20 A particular partnership is distinguished from a joint for an accounting. The essence of a partnership is that the partners
adventure, to wit: share in the profits and losses.29 Each has the right to demand an
accounting as long as the partnership exists.30 We have allowed a
scenario wherein "[i]f excellent relations exist among the partners at
(a) A joint adventure (an American concept similar to our
the start of the business and all the partners are more interested in
joint accounts) is a sort of informal partnership, with no firm
seeing the firm grow rather than get immediate returns, a deferment
name and no legal personality. In a joint account, the
of sharing in the profits is perfectly plausible."31 But in the situation in
participating merchants can transact business under their
the case at bar, the deferment, if any, had gone on too long to be
own name, and can be individually liable therefor.
plausible. A person is presumed to take ordinary care of his concerns.

(b) Usually, but not necessarily a joint adventure is limited A demand for periodic accounting is evidence of a
to a SINGLE TRANSACTION, although the business of partnership.34 During his lifetime, Tan Eng Kee appeared never to
pursuing to a successful termination may continue for a have made any such demand for accounting from his brother, Tang
number of years; a partnership generally relates to a Eng Lay.
continuing business of various transactions of a certain
kind.21 In the light of the aforequoted legal provision, we conclude that Tan
Eng Kee was only an employee, not a partner.
A joint venture "presupposes generally a parity of standing between
the joint co-ventures or partners, in which each party has an equal Tocao vs. Court of Appeals
proprietary interest in the capital or property contributed, and where 342 SCRA 20 (2001)
each party exercises equal rights in the conduct of the
business."22 Nonetheless, in Aurbach, et. al. v. Sanitary Wares FACTS: On November 14, 2001, petitioners Marjorie Tocao and
Manufacturing Corporation, et. al.,23 we expressed the view that a William T. Belo filed a Motion for Reconsideration of SC Decision dated
joint venture may be likened to a particular partnership, thus: October 4, 2000. They maintain that there was no partnership
between petitioner Belo, on the one hand, and respondent Nenita A.
Anay, on the other hand; and that the latter being merely an
The legal concept of a joint venture is of common law
employee of petitioner Tocao.
origin. It has no precise legal definition, but it has been
generally understood to mean an organization formed for
some temporary purpose. (Gates v. Megargel, 266 Fed. 811 ISSUE: Whether there is partnership between Belo and Anay.
[1920]) It is hardly distinguishable from the partnership,
since their elements are similar — community of interest in HELD: No.
the business, sharing of profits and losses, and a mutual
right of control. (Blackner v. McDermott, 176 F. 2d. 498,
[1949]; Carboneau v. Peterson, 95 P.2d., 1043 [1939]; After a careful review of the evidence presented, we are convinced
Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P.2d. 12 289 that, indeed, petitioner Belo acted merely as guarantor of Geminesse
P.2d. 242 [1955]). The main distinction cited by most Enterprise. This was categorically affirmed by respondent's own
opinions in common law jurisdiction is that the partnership witness, Elizabeth Bantilan, during her cross-examination.
contemplates a general business with some degree of Furthermore, Bantilan testified that it was Peter Lo who was the
continuity, while the joint venture is formed for the company's financier. Thus:
execution of a single transaction, and is thus of a temporary
nature. (Tufts v. Mann. 116 Cal. App. 170, 2 P. 2d. 500 Q - You mentioned a while ago the name William
[1931]; Harmon v. Martin, 395 Ill. 595, 71 NE 2d. 74 Belo. Now, what is the role of William Belo with
[1947]; Gates v. Megargel 266 Fed. 811 [1920]). This Geminesse Enterprise?
observation is not entirely accurate in this jurisdiction, since
under the Civil Code, a partnership may be particular or
universal, and a particular partnership may have for its A - William Belo is the friend of Marjorie Tocao and
object a specific undertaking. (Art. 1783, Civil Code). It he was the guarantor of the company.
would seem therefore that under Philippine law, a joint
venture is a form of partnership and should thus be Q - What do you mean by guarantor?
governed by the law of partnerships. The Supreme Court
has however recognized a distinction between these two
business forms, and has held that although a corporation A - He guarantees the stocks that she owes
cannot enter into a partnership contract, it may however somebody who is Peter Lo and he acts as guarantor for
engage in a joint venture with others. (At p. 12, Tuazon v. us. We can borrow money from him.
Bolaños, 95 Phil. 906 [1954]) (Campos and Lopez-Campos
Comments, Notes and Selected Cases, Corporation Code Q - You mentioned a certain Peter Lo. Who is this
1981). Peter Lo?

A - Peter Lo is based in Singapore.

 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
15
Q - What is the role of Peter Lo in the Geminesse Pursuant to the above offer, which plaintiff evidently accepted, the
Enterprise? parties executed a partnership agreement establishing the "Yang &
Company, Limited. In June , 1946, they executed a supplementary
agreement, extending the partnership and the benefits are to be
A - He is the one fixing our orders that open the L/C.
divided between them at the rate of 50-50 and after December 31,
1950, the showhouse building shall belong exclusively to the second
Q - You mean Peter Lo is the financier? party, Mrs. Yulo.

A - Yes, he is the financier. The land on which the theatre was constructed was leased by plaintiff
Mrs. Yulo from Emilia Carrion Santa Marina and Maria Carrion Santa
Q - And the defendant William Belo is merely the Marina. But on April 12, 1949, the attorney for the owners notified
guarantor of Geminesse Enterprise, am I correct? Mrs. Yulo of the owner's desire to cancel the contract of lease on July
31, 1949. On February 9, 1950, the Municipal Court of Manila
rendered judgment ordering the ejectment of Mrs. Yulo and Mr. Yang.
A - Yes, sir
On October 27, 1950, Mrs. Yulo demanded from Yang Chiao Seng her
The foregoing was neither refuted nor contradicted by respondent's share in the profits of the business. In view of the refusal of Yang to
evidence. It should be recalled that the business relationship created pay her the amount agreed upon, Mrs. Yulo instituted this action on
between petitioner Tocao and respondent Anay was an informal May 26, 1954, alleging the existence of a partnership between them
partnership, which was not even recorded with the Securities and and that the defendant Yang Chiao Seng has refused to pay her share
Exchange Commission. As such, it was understandable that Belo, from December, 1949 to December, 1950.
who was after all petitioner Tocao's good friend and confidante,
would occasionally participate in the affairs of the business, although
never in a formal or official capacity.3 Again, respondent's witness, In answer to the complaint, defendant alleges that the real agreement
Elizabeth Bantilan, confirmed that petitioner Belo's presence in between the plaintiff and the defendant was one of lease and not of
Geminesse Enterprise's meetings was merely as guarantor of the partnership; that the partnership was adopted as a subterfuge to get
company and to help petitioner Tocao. around the prohibition contained in the contract of lease between the
owners and the plaintiff against the sublease of the said property.

Furthermore, no evidence was presented to show that petitioner

Belo participated in the profits of the business enterprise. The trial court denied the complaint.
Respondent herself professed lack of knowledge that petitioner Belo
received any share in the net income of the partnership.5 On the ISSUE: What is the agreement between plaintiff and defendant.
other hand, petitioner Tocao declared that petitioner Belo was not
entitled to any share in the profits of Geminesse Enterprise.6 With no HELD: Sub-lease.
participation in the profits, petitioner Belo cannot be deemed a
partner since the essence of a partnership is that the partners share We have gone over the evidence and we fully agree with the
in the profits and losses.7 conclusion of the trial court that the agreement was a sublease, not a
partnership. The following are the requisites of partnership: (1) two
Consequently, inasmuch as petitioner Belo was not a partner in or more persons who bind themselves to contribute money, property,
Geminesse Enterprise, respondent had no cause of action against him or industry to a common fund; (2) intention on the part of the partners
and her complaint against him should accordingly be dismissed. to divide the profits among themselves. (Art. 1767, Civil Code.).

Yulo vs. Yang Chiao Seng In the first place, plaintiff did not furnish the supposed P20,000
G.R. No. L-12541, August 28, 1959 capital. In the second place, she did not furnish any help or
intervention in the management of the theatre. In the third place, it
FACTS: On June 17, 1945, defendant Yang Chiao Seng wrote a letter does not appear that she has ever demanded from defendant any
to the palintiff Mrs. Rosario U. Yulo, proposing the formation of a accounting of the expenses and earnings of the business. Were she
partnership between them to run and operate a theatre on the really a partner, her first concern should have been to find out how
premises occupied by former Cine Oro at Plaza Sta. Cruz, Manila. The the business was progressing, whether the expenses were legitimate,
principal conditions of the offer are: whether the earnings were correct, etc. She was absolutely silent with
respect to any of the acts that a partner should have done; all that
she did was to receive her share of P3,000 a month, which can not
(1) that Yang Chiao Seng guarantees Mrs. Yulo a monthly participation be interpreted in any manner than a payment for the use of the
of P3,000 payable quarterly in advance within the first 15 days of each premises which she had leased from the owners. Clearly, plaintiff had
quarter; always acted in accordance with the original letter of defendant of
June 17, 1945 (Exh. "A"), which shows that both parties considered
(2) that the partnership shall be for a period of two years and six this offer as the real contract between them.
months, with the condition that if the land is expropriated or rendered
impracticable for the business, or if the owner constructs a permanent Plaintiff claims the sum of P41,000 as representing her share or
building thereon, or Mrs. Yulo's right of lease is terminated by the participation in the business from December, 1949. But the original
owner, then the partnership shall be terminated even if the period for letter of the defendant, Exh. "A", expressly states that the agreement
which the partnership was agreed to be established has not yet between the plaintiff and the defendant was to end upon the
expired; termination of the right of the plaintiff to the lease. Plaintiff's right
having terminated in July, 1949 as found by the Court of Appeals, the
xxxx partnership agreement or the agreement for her to receive a
participation of P3,000 automatically ceased as of said date.
(4) that after December 31, 1947, all improvements placed by the
partnership shall belong to Mrs. Yulo, but if the partnership agreement
is terminated before the lapse of one and a half years period under
any of the causes mentioned in paragraph (2), then Yang Chiao Seng
shall have the right to remove and take away all improvements that ONA vs. CIRG
the partnership may place in the premises. G.R. No. L-19342, May 25, 1972

FACTS: Julia Buñales died on March 23, 1944, leaving as heirs her
surviving spouse, Lorenzo T. Oña and her five children. Settlement of
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
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the estate was made and Lorenzo was made as administrator of the It is thus incontrovertible that petitioners did not, contrary to their
properties of the co-ownership. In the project of partition, it showed contention, merely limit themselves to holding the properties inherited
that the heirs have undivided one-half (1/2) interest in ten parcels of by them. Indeed, it is admitted that during the material years herein
land with a total assessed value of P87,860.00, six houses with a total involved, some of the said properties were sold at considerable profit,
assessed value of P17,590.00 and P50,000 from the War Damage and that with said profit, petitioners engaged, thru Lorenzo T. Oña, in
Commission. This amount was not divided among them but was used the purchase and sale of corporate securities. It is likewise admitted
in the rehabilitation of properties owned by them in common (t.s.n., that all the profits from these ventures were divided among petitioners
p. 46). Of the ten parcels of land aforementioned, two were acquired proportionately in accordance with their respective shares in the
after the death of the decedent with money borrowed from the inheritance. In these circumstances, it is Our considered view that
Philippine Trust Company in the amount of P72,173.00. from the moment petitioners allowed not only the incomes from their
respective shares of the inheritance but even the inherited properties
themselves to be used by Lorenzo T. Oña as a common fund in
Although the project of partition was approved by the Court on May
undertaking several transactions or in business, with the intention of
16, 1949, no attempt was made to divide the properties therein listed.
deriving profit to be shared by them proportionally, such act was
Instead, the properties remained under the management of Lorenzo
tantamonut to actually contributing such incomes to a common fund
T. Oña who used said properties in business by leasing or selling them
and, in effect, they thereby formed an unregistered
and investing the income derived therefrom and the proceeds from
partnership within the purview of the above-mentioned
the sales thereof in real properties and securities. As a result,
provisions of the Tax Code.
petitioners' properties and investments gradually increased from
P105,450.00 in 1949 to P480,005.20 in 1956. From said investments
and properties petitioners derived such incomes as profits from It is but logical that in cases of inheritance, there should be a period
installment sales of subdivided lots, profits from sales of stocks, when the heirs can be considered as co-owners rather than
dividends, rentals and interests. unregistered co-partners within the contemplation of our corporate
tax laws aforementioned. Before the partition and distribution of
the estate of the deceased, all the income thereof does
On the basis of the foregoing facts, respondent (Commissioner of
belong commonly to all the heirs, obviously, without them
Internal Revenue) decided that petitioners formed an unregistered
becoming thereby unregistered co-partners, but it does not
partnership and therefore, subject to the corporate income tax,
necessarily follow that such status as co-owners continues
pursuant to Section 24, in relation to Section 84(b), of the Tax Code.
until the inheritance is actually and physically distributed
among the heirs, for it is easily conceivable that after knowing their
The Court of Tax Appeals held that petitioners have constituted an respective shares in the partition, they might decide to continue
unregistered partnership and are, therefore, subject to the payment holding said shares under the common management of the
of the deficiency corporate income taxes assessed against them by administrator or executor or of anyone chosen by them and engage
respondent Commissioner of Internal Revenue for the years 1955 and in business on that basis. Withal, if this were to be allowed, it would
1956. be the easiest thing for heirs in any inheritance to circumvent and
render meaningless Sections 24 and 84(b) of the National
ISSUE: Is there partnership or co-ownership. Internal Revenue Code.

HELD: Partnership. It is true that in Evangelista vs. Collector, 102 Phil. 140, it was stated,
among the reasons for holding the appellants therein to be
Pondering on these questions, the first thing that has struck the Court unregistered co-partners for tax purposes, that their common fund
is that whereas petitioners' predecessor in interest died way back on "was not something they found already in existence" and that "it was
March 23, 1944 and the project of partition of her estate was judicially not a property inherited by them pro indiviso," but it is certainly
approved as early as May 16, 1949, and presumably petitioners have farfetched to argue therefrom, as petitioners are doing here,
been holding their respective shares in their inheritance since those that ergo, in all instances where an inheritance is not actually divided,
dates admittedly under the administration or management of the head there can be no unregistered co-partnership. As already indicated,
of the family, the widower and father Lorenzo T. Oña, the assessment for tax purposes, the co-ownership of inherited properties is
in question refers to the later years 1955 and 1956. We believe this automatically converted into an unregistered partnership the
point to be important because, apparently, at the start, or in the years moment the said common properties and/or the incomes
1944 to 1954, the respondent Commissioner of Internal Revenue did derived therefrom are used as a common fund with intent to
treat petitioners as co-owners, not liable to corporate tax, and it was produce profits for the heirs in proportion to their respective shares
only from 1955 that he considered them as having formed an in the inheritance as determined in a project partition either duly
unregistered partnership. At least, there is nothing in the record executed in an extrajudicial settlement or approved by the court in
indicating that an earlier assessment had already been made. Such the corresponding testate or intestate proceeding. The reason for this
being the case, and We see no reason how it could be otherwise, it is is simple. From the moment of such partition, the heirs are entitled
easily understandable why petitioners' position that they are co- already to their respective definite shares of the estate and the
owners and not unregistered co-partners, for the purposes of the incomes thereof, for each of them to manage and dispose of as
impugned assessment, cannot be upheld. Truth to tell, petitioners exclusively his own without the intervention of the other heirs, and,
should find comfort in the fact that they were not similarly assessed accordingly he becomes liable individually for all taxes in connection
earlier by the Bureau of Internal Revenue. therewith. If after such partition, he allows his share to be held
in common with his co-heirs under a single management to
The Tax Court found that instead of actually distributing the estate of be used with the intent of making profit thereby in proportion to
the deceased among themselves pursuant to the project of partition his share, there can be no doubt that, even if no document or
approved in 1949, "the properties remained under the management instrument were executed for the purpose, for tax purposes, at
of Lorenzo T. Oña who used said properties in business by leasing or least, an unregistered partnership is formed. This is exactly
selling them and investing the income derived therefrom and the what happened to petitioners in this case.
proceed from the sales thereof in real properties and securities," as a
result of which said properties and investments steadily increased In this connection, petitioners' reliance on Article 1769,
yearly. And all these became possible because, admittedly, petitioners paragraph (3), of the Civil Code, providing that: "The sharing of
never actually received any share of the income or profits from gross returns does not of itself establish a partnership, whether or not
Lorenzo T. Oña and instead, they allowed him to continue using said the persons sharing them have a joint or common right or interest in
shares as part of the common fund for their ventures, even as they any property from which the returns are derived," and, for that
paid the corresponding income taxes on the basis of their respective matter, on any other provision of said code on partnerships is
shares of the profits of their common business as reported by the said unavailing. In Evangelista, supra, this Court clearly differentiated
Lorenzo T. Oña. the concept of partnerships under the Civil Code from that of
unregistered partnerships which are considered as "corporations"
under Sections 24 and 84(b) of the National Internal Revenue Code.
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
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Mr. Justice Roberto Concepcion, now Chief Justice, elucidated on this admitted that the inherited properties and the income
point thus: derived therefrom were used in the business of buying and
selling other real properties and corporate securities.
Accordingly, the partnership income must include not only
To begin with, the tax in question is one imposed upon
the income derived from the purchase and sale of other
"corporations", which, strictly speaking, are distinct and
properties but also the income of the inherited properties.
different from "partnerships". When our Internal Revenue
Code includes "partnerships" among the entities subject to
the tax on "corporations", said Code must allude, therefore, Besides, as already observed earlier, the income derived from
to organizations which are not necessarily "partnerships", inherited properties may be considered as individual income of the
in the technical sense of the term. Thus, for instance, respective heirs only so long as the inheritance or estate is not
section 24 of said Code exempts from the aforementioned distributed or, at least, partitioned, but the moment their respective
tax "duly registered general partnerships," which constitute known shares are used as part of the common assets of the heirs to
precisely one of the most typical forms of partnerships in be used in making profits, it is but proper that the income of such
this jurisdiction. Likewise, as defined in section 84(b) of said shares should be considered as the part of the taxable income of an
Code, "the term corporation includes partnerships, no unregistered partnership. This, We hold, is the clear intent of the law.
matter how created or organized." This qualifying
expression clearly indicates that a joint venture need not be
undertaken in any of the standard forms, or in conformity Heirs of Lim vs. Lim
with the usual requirements of the law on partnerships, in 614 SCRA 141
order that one could be deemed constituted for purposes GR. No. 172690, March 3, 2010
of the tax on corporation. Again, pursuant to said section
84(b),the term "corporation" includes, among others, "joint
accounts,(cuentas en participacion)" and "associations", FACTS: Petitioners are the heirs of the late Jose Lim, represented by
none of which has a legal personality of its own, Elenito Lim (Elenito). They filed a Complaint4 for Partition, Accounting
independent of that of its members. Accordingly, the and Damages against respondent Juliet Villa Lim (respondent), widow
lawmaker could not have regarded that personality as a of the late Elfledo Lim (Elfledo), who was the eldest son of Jose and
condition essential to the existence of the partnerships Cresencia.
therein referred to. In fact, as above stated, "duly
registered general co-partnerships" — which are possessed Petitioners alleged that Jose, together with his friends Jimmy Yu
of the aforementioned personality — have been expressly (Jimmy) and Norberto Uy (Norberto), formed a partnership to engage
excluded by law (sections 24 and 84[b]) from the in the trucking business. Initially, with a contribution of ₱50,000.00
connotation of the term "corporation." .... each, they purchased a truck to be used in the hauling and transport
of lumber of the sawmill. Jose managed the operations of this trucking
xxx xxx xxx business until his death on August 15, 1981. Thereafter, Jose's heirs,
including Elfledo, and partners agreed to continue the business under
the management of Elfledo. The shares in the partnership profits and
Similarly, the American Law income that formed part of the estate of Jose were held in trust by
Elfledo, with petitioners' authority for Elfledo to use, purchase or
... provides its own concept of a partnership. acquire properties using said funds.
Under the term "partnership" it includes not only a
partnership as known in common law but, as well, a Petitioners also alleged that under the management of Elfledo, the
syndicate, group, pool, joint venture, or other partnership increased the number of trucks to 9 and also acquired 5
unincorporated organization which carries on any business, other motor vehicles and other real properties.
financial operation, or venture, and which is not, within the
meaning of the Code, a trust, estate, or a corporation. ... .
(7A Merten's Law of Federal Income Taxation, p. 789; On May 18, 1995, Elfledo died, leaving respondent as his sole
emphasis ours.) surviving heir. Petitioners claimed that respondent took over the
administration of the aforementioned properties, which belonged to
the estate of Jose, without their consent and approval. Claiming that
The term "partnership" includes a syndicate, group, they are co-owners of the properties, petitioners required respondent
pool, joint venture or other unincorporated organization, to submit an accounting of all income, profits and rentals received
through or by means of which any business, financial from the estate of Elfledo, and to surrender the administration
operation, or venture is carried on. ... . (8 Merten's Law of thereof. Respondent refused; thus, the filing of this case.
Federal Income Taxation, p. 562 Note 63; emphasis ours.)
Respondent traversed petitioners' allegations and claimed that Elfledo
For purposes of the tax on corporations, our National Internal was himself a partner of Norberto and Jimmy. Respondent also
Revenue Code includes these partnerships — with the exception only claimed that per testimony of Cresencia, sometime in 1980, Jose gave
of duly registered general copartnerships — within the purview of the Elfledo ₱50,000.00 as the latter's capital in an informal partnership
term "corporation." It is, therefore, clear to our mind that petitioners with Jimmy and Norberto. When Elfledo and respondent got married
herein constitute a partnership, insofar as said Code is concerned, and in 1981, the partnership only had one truck; but through the efforts
are subject to the income tax for corporations. of Elfledo, the business flourished. Respondent maintained that all the
properties involved in this case were purchased and acquired through
As regards the second question raised by petitioners about the her and her husband’s joint efforts and hard work, and without any
segregation, for the purposes of the corporate taxes in question, of participation or contribution from petitioners or from Jose.
their inherited properties from those acquired by them subsequently, Respondent submitted that these are conjugal partnership properties;
We consider as justified the following ratiocination of the Tax Court in and thus, she had the right to refuse to render an accounting for the
denying their motion for reconsideration: income or profits of their own business.

In connection with the second ground, it is alleged that, if The trial court ruled to partition the properties. The Court of Appeals,
there was an unregistered partnership, the holding should however, dismissed the complaint for lack of merit.
be limited to the business engaged in apart from the
properties inherited by petitioners. In other words, the
taxable income of the partnership should be limited to the
income derived from the acquisition and sale of real ISSUE: Whether or not Elfledo was a partner or merely acted on
properties and corporate securities and should not include behalf of the co-ownership in the partnership.
the income derived from the inherited properties. It is
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
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HELD: Elfledo was a partner. (d) As interest on a loan, though the amount of
payment vary with the profits of the business;
A partnership exists when two or more persons agree to place their
money, effects, labor, and skill in lawful commerce or business, with
(e) As the consideration for the sale of a
the understanding that there shall be a proportionate sharing of the
goodwill of a business or other property by
profits and losses among them. A contract of partnership is defined
installments or otherwise.
by the Civil Code as one where two or more persons bind themselves
to contribute money, property, or industry to a common fund, with
the intention of dividing the profits among themselves.12 Applying the legal provision to the facts of this case, the following
circumstances tend to prove that Elfledo was himself the partner of
Jimmy and Norberto: 1) Cresencia testified that Jose gave Elfledo
Undoubtedly, the best evidence would have been the contract of
₱50,000.00, as share in the partnership, on a date that coincided
partnership or the articles of partnership. Unfortunately, there is none
with the payment of the initial capital in the partnership;15 (2)
in this case, because the alleged partnership was never formally
Elfledo ran the affairs of the partnership, wielding absolute control,
organized. Nonetheless, we are asked to determine who between Jose
power and authority, without any intervention or opposition
and Elfledo was the "partner" in the trucking business.
whatsoever from any of petitioners herein;16 (3) all of the properties,
particularly the nine trucks of the partnership, were registered in the
A careful review of the records persuades us to affirm the CA decision. name of Elfledo; (4) Jimmy testified that Elfledo did not receive
The evidence presented by petitioners falls short of the quantum of wages or salaries from the partnership, indicating that what he
proof required to establish that: (1) Jose was the partner and not actually received were shares of the profits of the business;17 and
Elfledo; and (2) all the properties acquired by Elfledo and respondent (5) none of the petitioners, as heirs of Jose, the alleged partner,
form part of the estate of Jose, having been derived from the alleged demanded periodic accounting from Elfledo during his lifetime. As
partnership. repeatedly stressed in Heirs of Tan Eng Kee,18 a demand for periodic
accounting is evidence of a partnership.
Petitioners heavily rely on Jimmy's testimony. But that testimony is
just one piece of evidence against respondent. It must be considered Furthermore, petitioners failed to adduce any evidence to show that
and weighed along with petitioners' other evidence vis-à-vis the real and personal properties acquired and registered in the
respondent's contrary evidence. In civil cases, the party having the names of Elfledo and respondent formed part of the estate of Jose,
burden of proof must establish his case by a preponderance of having been derived from Jose's alleged partnership with Jimmy and
evidence. "Preponderance of evidence" is the weight, credit, and Norberto. They failed to refute respondent's claim that Elfledo and
value of the aggregate evidence on either side and is usually respondent engaged in other businesses. Edison even admitted that
considered synonymous with the term "greater weight of the Elfledo also sold Interwood lumber as a sideline.19 Petitioners could
evidence" or "greater weight of the credible evidence." not offer any credible evidence other than their bare assertions.
"Preponderance of evidence" is a phrase that, in the last analysis, Thus, we apply the basic rule of evidence that between
means probability of the truth. It is evidence that is more convincing documentary and oral evidence, the former carries more weight.
to the court as worthy of belief than that which is offered in opposition
thereto.
Article 1773
At this juncture, our ruling in Heirs of Tan Eng Kee v. Court of
Appeals14 is enlightening. Therein, we cited Article 1769 of the Civil
Code, which provides: Agad vs. Mabato
23 SCRA 1223
G.R. No. L-24193, June 28, 1968
Art. 1769. In determining whether a partnership exists, these rules
shall apply:
FACTS: Alleging that he and defendant Severino Mabato are —
pursuant to a public instrument dated August 29, 1952, copy of which
(1) Except as provided by Article 1825, persons who are is attached to the complaint as Annex "A" — partners in a fishpond
not partners as to each other are not partners as to third business, to the capital of which Agad contributed P1,000, with the
persons; right to receive 50% of the profits; that from 1952 up to and including
1956, Mabato who handled the partnership funds, had yearly
(2) Co-ownership or co-possession does not of itself rendered accounts of the operations of the partnership; and that,
establish a partnership, whether such co-owners or co- despite repeated demands, Mabato had failed and refused to render
possessors do or do not share any profits made by the use accounts for the years 1957 to 1963, Agad prayed in his complaint
of the property; against Mabato and Mabato & Agad Company, filed on June 9, 1964,
that judgment be rendered sentencing Mabato to pay him (Agad) the
sum of P14,000, as his share in the profits of the partnership for the
(3) The sharing of gross returns does not of itself establish period from 1957 to 1963, in addition to P1,000 as attorney's fees,
a partnership, whether or not the persons sharing them and ordering the dissolution of the partnership, as well as the winding
have a joint or common right or interest in any property up of its affairs by a receiver to be appointed therefor.
from which the returns are derived;

In his answer, Mabato admitted the formal allegations of the

(4) The receipt by a person of a share of the profits of a complaint and denied the existence of said partnership, upon the
business is a prima facie evidence that he is a partner in ground that the contract therefor had not been perfected, despite the
the business, but no such inference shall be drawn if such execution of Annex "A", because Agad had allegedly failed to give his
profits were received in payment: P1,000 contribution to the partnership capital. Mabato prayed,
therefore, that the complaint be dismissed; that Annex "A" be
(a) As a debt by installments or otherwise; declared void ab initio.

(b) As wages of an employee or rent to a Subsequently, Mabato filed a motion to dismiss, upon the ground that
landlord; the complaint states no cause of action and that the lower court had
no jurisdiction over the subject matter of the case, because it involves
principally the determination of rights over public lands. After due
(c) As an annuity to a widow or representative hearing, the court issued the order appealed from, granting the
of a deceased partner; motion to dismiss the complaint for failure to state a cause of action.
This conclusion was predicated upon the theory that the contract of
partnership, Annex "A", is null and void, pursuant to Art. 1773 of our
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
19
Civil Code, because an inventory of the fishpond referred in said subdivision. 4 All three of them also agreed to share the proceeds from
instrument had not been attached thereto. the sale of the subdivided lots.

ISSUE: Whether the contract of partnership is void pursuant to Article The project did not push through, and the land was subsequently
1773 of the New Civil Code on Partnership. foreclosed by the bank.

HELD: No.
ISSUE: Whether or not the Joint Venture Agreement is void.
Articles 1771 and 1773 of said Code provide:
HELD: No.

Art. 1771. A partnership may be constituted in any form,

Petitioners argue that the Joint Venture Agreement is void under
except where immovable property or real rights are
Article 1773 of the Civil Code, which provides:
contributed thereto, in which case a public instrument shall
be necessary.
Art. 1773. A contract of partnership is void,
whenever immovable property is contributed
Art. 1773. A contract of partnership is void, whenever
thereto, if an inventory of said property is not
immovable property is contributed thereto, if inventory of
made, signed by the parties, and attached to the
said property is not made, signed by the parties; and
public instrument.
attached to the public instrument.

They contend that since the parties did not make, sign or attach to
The issue before us hinges on whether or not "immovable property or
the public instrument an inventory of the real property contributed,
real rights" have been contributed to the partnership under
the partnership is void.
consideration. Mabato alleged and the lower court held that the
answer should be in the affirmative, because "it is really inconceivable
how a partnership engaged in the fishpond business could exist We clarify. First, Article 1773 was intended primarily to protect third
without said fishpond property (being) contributed to the persons. Thus, the eminent Arturo M. Tolentino states that under the
partnership." It should be noted, however, that, as stated in Annex aforecited provision which is a complement of Article 1771, 12 "The
"A" the partnership was established "to operate a fishpond", not to execution of a public instrument would be useless if there is no
"engage in a fishpond business". Moreover, none of the partners inventory of the property contributed, because without its designation
contributed either a fishpond or a real right to any fishpond. Their and description, they cannot be subject to inscription in the Registry
contributions were limited to the sum of P1,000 each. Indeed, of Property, and their contribution cannot prejudice third persons.
Paragraph 4 of Annex "A" provides: This will result in fraud to those who contract with the partnership in
the belief [in] the efficacy of the guaranty in which the immovables
may consist. Thus, the contract is declared void by the law when no
That the capital of the said partnership is Two Thousand
such inventory is made." The case at bar does not involve third parties
(P2,000.00) Pesos Philippine Currency, of which One
who may be prejudiced.
Thousand (P1,000.00) pesos has been contributed by
Severino Mabato and One Thousand (P1,000.00) Pesos has
been contributed by Mauricio Agad. Second, petitioners themselves invoke the allegedly void contract as
basis for their claim that respondent should pay them 60 percent of
the value of the property. 13 They cannot in one breath deny the
xxx xxx xxx
contract and in another recognize it, depending on what momentarily
suits their purpose. Parties cannot adopt inconsistent positions in
The operation of the fishpond mentioned in Annex "A" was the regard to a contract and courts will not tolerate, much less approve,
purpose of the partnership. Neither said fishpond nor a real right such practice.
thereto was contributed to the partnership or became part of the
capital thereof, even if a fishpond or a real right thereto could become
In short, the alleged nullity of the partnership will not prevent courts
part of its assets.
from considering the Joint Venture Agreement an ordinary contract
from which the parties' rights and obligations to each other may be
WHEREFORE, we find that said Article 1773 of the Civil Code is not in inferred and enforced.
point and that, the order appealed from should be, as it is hereby set
aside and the case remanded to the lower court for further
proceedings.
Litonjua vs. Litonjua
477 SCRA 576
Torres vs. Court of Appeals
G.R. NOS. 166299-300, December 13, 2005
GR No. 134559, December 9, 1999

“Courts may not extricate parties from the necessary consequences FACTS: Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein
respondent Eduardo K. Litonjua, Sr. (Eduardo) are brothers. The legal
of their acts. That the terms of a contract turn out to be financially
dispute between them started when, on December 4, 2002, in the
disadvantageous to them will not relieve them of their obligations
Regional Trial Court (RTC) at Pasig City, Aurelio filed a suit against his
therein. The lack of an inventory of real property will not ipso
brother Eduardo and herein respondent Robert T. Yang (Yang) and
facto release the contracting partners from their respective
several corporations for specific performance and accounting. In his
obligations to each other arising from acts executed in accordance
complaint,3 docketed as Civil Case No. 69235 and eventually raffled to
with their agreement.”
Branch 68 of the court,4 Aurelio alleged that, since June 1973, he and
Eduardo are into a joint venture/partnership arrangement in the
FACTS: Sisters Antonia Torres and Emeteria Baring, herein Odeon Theater business.The same complaint also contained the
petitioners, entered into a "joint venture agreement" with Respondent following material averments:
Manuel Torres for the development of a parcel of land into a
subdivision. Pursuant to the contract, they executed a Deed of Sale
xxxx
covering the said parcel of land in favor of respondent, who then had
it registered in his name. By mortgaging the property, respondent
obtained from Equitable Bank a loan of P40,000 which, under the Joint 3.01.1 This joint venture/[partnership] agreement was contained in a
Venture Agreement, was to be used for the development of the memorandum addressed by Eduardo to his siblings, parents and other
relatives. Copy of this memorandum is attached hereto and made an
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
20
integral part as Annex "A" and the portion referring to [Aurelio] Art. 1771. A partnership may be constituted in any form, except where
submarked as Annex "A-1". immovable property or real rights are contributed thereto, in which
case a public instrument shall be necessary.
3.02 It was then agreed upon between [Aurelio] and Eduardo that in
consideration of [Aurelio’s] retaining his share in the remaining family Art. 1772. Every contract of partnership having a capital of three
businesses (mostly, movie theaters, shipping and land development) thousand pesos or more, in money or property, shall appear in a public
and contributing his industry to the continued operation of these instrument, which must be recorded in the Office of the Securities and
businesses, [Aurelio] will be given P1 Million or 10% equity in all these Exchange Commission.
businesses and those to be subsequently acquired by them whichever
is greater. . . .
Failure to comply with the requirement of the preceding paragraph
shall not affect the liability of the partnership and the members
xxxx thereof to third persons.

5.02 Sometime in 1992, the relations between [Aurelio] and Eduardo Art. 1773. A contract of partnership is void, whenever immovable
became sour so that [Aurelio] requested for an accounting and property is contributed thereto, if an inventory of said property is not
liquidation of his share in the joint venture/partnership [but these made, signed by the parties, and attached to the public instrument.
demands for complete accounting and liquidation were not heeded].
Annex "A-1", on its face, contains typewritten entries, personal in
Eduardo and the corporate respondents, as defendants a quo, filed a tone, but is unsigned and undated. As an unsigned document,
joint ANSWER With Compulsory Counterclaim denying under oath the there can be no quibbling that Annex "A-1" does not meet the public
material allegations of the complaint, more particularly that portion instrumentation requirements exacted under Article 1771 of the Civil
thereof depicting petitioner and Eduardo as having entered into a Code. Moreover, being unsigned and doubtless referring to a
contract of partnership. As affirmative defenses, Eduardo, et al., apart partnership involving more than P3,000.00 in money or property,
from raising a jurisdictional matter, alleged that the complaint states Annex "A-1" cannot be presented for notarization, let alone
no cause of action, since no cause of action may be derived from the registered with the Securities and Exchange Commission (SEC), as
actionable document, i.e., Annex "A-1", being void under the terms called for under the Article 1772 of the Code. And inasmuch as the
of Article 1767 in relation to Article 1773 of the Civil Code, infra. It is inventory requirement under the succeeding Article 1773 goes into
further alleged that whatever undertaking Eduardo agreed to do, if the matter of validity when immovable property is contributed to the
any, under Annex "A-1", are unenforceable under the provisions of partnership, the next logical point of inquiry turns on the nature of
the Statute of Frauds.7 petitioner’s contribution, if any, to the supposed partnership.

The trial court granted the prayer in the complaint but was later The CA, addressing the foregoing query, correctly stated that
reversed by the Court of Appeals. petitioner’s contribution consisted of immovables and real rights.
Wrote that court:
Explaining its case disposition, the appellate court stated, inter
alia, that the alleged partnership, as evidenced by the actionable A further examination of the allegations in the complaint would show
documents, Annex "A" and "A-1" attached to the complaint, that [petitioner’s] contribution to the so-called "partnership/joint
and upon which petitioner solely predicates his right/s allegedly venture" was his supposed share in the family business that is
violated by Eduardo, Yang and the corporate defendants a quo is consisting of movie theaters, shipping and land development under
"void or legally inexistent". paragraph 3.02 of the complaint. In other words, his contribution as
a partner in the alleged partnership/joint venture consisted of
immovable properties and real rights. ….23
ISSUE: Whether or not there was no partnership created by the
actionable document because the latter was not a public instrument
and immovable properties were contributed to the partnership Significantly enough, petitioner matter-of-factly concurred with the
pursuant to Article 1773. appellate court’s observation that, prescinding from what he himself
alleged in his basic complaint, his contribution to the partnership
HELD: There was no partnership. consisted of his share in the Litonjua family businesses which owned
variable immovable properties. Petitioner’s assertion in his motion for
A partnership exists when two or more persons agree to place their reconsideration24 of the CA’s decision, that "what was to be
money, effects, labor, and skill in lawful commerce or business, with contributed to the business [of the partnership] was [petitioner’s]
the understanding that there shall be a proportionate sharing of the industry and his share in the family [theatre and land development]
profits and losses between them.20 A contract of partnership is defined business" leaves no room for speculation as to what petitioner
by the Civil Code as one where two or more persons bound contributed to the perceived partnership.
themselves to contribute money, property, or industry to a common
fund with the intention of dividing the profits among themselves.21 A
Lest it be overlooked, the contract-validating inventory requirement
joint venture, on the other hand, is hardly distinguishable from, and
under Article 1773 of the Civil Code applies as long real property or
may be likened to, a partnership since their elements are similar, i.e.,
real rights are initially brought into the partnership. In short, it is really
community of interests in the business and sharing of profits and
of no moment which of the partners, or, in this case, who between
losses. Being a form of partnership, a joint venture is generally
petitioner and his brother Eduardo, contributed immovables. In
governed by the law on partnership.22
context, the more important consideration is that real property was
contributed, in which case an inventory of the contributed property
The underlying issue that necessarily comes to mind in this duly signed by the parties should be attached to the public instrument,
proceedings is whether or not petitioner and respondent Eduardo are else there is legally no partnership to speak of.
partners in the theatre, shipping and realty business, as one claims
but which the other denies. And the issue bearing on the first assigned
Petitioner, in an obvious bid to evade the application of Article 1773,
error relates to the question of what legal provision is applicable under
argues that the immovables in question were not contributed, but
the premises, petitioner seeking, as it were, to enforce the actionable
were acquired after the formation of the supposed partnership.
document - Annex "A-1" - which he depicts in his complaint to be the
Needless to stress, the Court cannot accord cogency to this specious
contract of partnership/joint venture between himself and Eduardo.
argument. For, as earlier stated, petitioner himself admitted
Clearly, then, a look at the legal provisions determinative of the
contributing his share in the supposed shipping, movie theatres and
existence, or defining the formal requisites, of a partnership is
realty development family businesses which already owned
indicated. Foremost of these are the following provisions of the Civil
immovables even before Annex "A-1" was allegedly executed.
Code:
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
21
Considering thus the value and nature of petitioner’s alleged
contribution to the purported partnership, the Court, even if so The theory of the petitioner, Commissioner of Internal Revenue, is
disposed, cannot plausibly extend Annex "A-1" the legal effects that that the marriage of Suter and Spirig and their subsequent acquisition
petitioner so desires and pleads to be given. Annex "A-1", in fine, of the interests of remaining partner Carlson in the partnership
cannot support the existence of the partnership sued upon and sought dissolved the limited partnership, and if they did not, the fiction of
to be enforced. The legal and factual milieu of the case calls for this juridical personality of the partnership should be disregarded for
disposition. A partnership may be constituted in any form, save when income tax purposes because the spouses have exclusive ownership
immovable property or real rights are contributed thereto or when the and control of the business; consequently the income tax return of
partnership has a capital of at least ₱3,000.00, in which case a public respondent Suter for the years in question should have included his
instrument shall be necessary.25 And if only to stress what has and his wife's individual incomes and that of the limited partnership,
repeatedly been articulated, an inventory to be signed by the parties in accordance with Section 45 (d) of the National Internal Revenue
and attached to the public instrument is also indispensable to the Code, which provides as follows:
validity of the partnership whenever immovable property is
contributed to it.
(d) Husband and wife. — In the case of married persons,
whether citizens, residents or non-residents, only one
Given the foregoing perspective, what the appellate court wrote in its consolidated return for the taxable year shall be filed by
assailed Decision26 about the probative value and legal effect of either spouse to cover the income of both spouses; ....
Annex "A-1" commends itself for concurrence:
In refutation of the foregoing, respondent Suter maintains, as the
Considering that the allegations in the complaint showed that Court of Tax Appeals held, that his marriage with limited partner Spirig
[petitioner] contributed immovable properties to the alleged and their acquisition of Carlson's interests in the partnership in 1948
partnership, the "Memorandum" (Annex "A" of the complaint) which is not a ground for dissolution of the partnership, either in the Code
purports to establish the said "partnership/joint venture" is NOT a of Commerce or in the New Civil Code, and that since its juridical
public instrument and there was NO inventory of the immovable personality had not been affected and since, as a limited partnership,
property duly signed by the parties. As such, the said as contra distinguished from a duly registered general partnership, it
"Memorandum" … is null and void for purposes of is taxable on its income similarly with corporations, Suter was not
establishing the existence of a valid contract of partnership. bound to include in his individual return the income of the limited
Indeed, because of the failure to comply with the essential formalities partnership.
of a valid contract, the purported "partnership/joint venture" is legally
inexistent and it produces no effect whatsoever. Necessarily, a void
We find the Commissioner's appeal unmeritorious.
or legally inexistent contract cannot be the source of any contractual
or legal right. Accordingly, the allegations in the complaint, including
the actionable document attached thereto, clearly demonstrates that The thesis that the limited partnership, William J. Suter "Morcoin" Co.,
[petitioner] has NO valid contractual or legal right which could be Ltd., has been dissolved by operation of law because of the marriage
violated by the [individual respondents] herein. As a consequence, of the only general partner, William J. Suter to the originally limited
[petitioner’s] complaint does NOT state a valid cause of action partner, Julia Spirig one year after the partnership was organized is
because NOT all the essential elements of a cause of action are rested by the appellant upon the opinion of now Senator Tolentino in
present. (Underscoring and words in bracket added.) Commentaries and Jurisprudence on Commercial Laws of the
Philippines, Vol. 1, 4th Ed., page 58, that reads as follows:

Article 1782 A husband and a wife may not enter into a contract
of general copartnership, because under the Civil Code,
which applies in the absence of express provision in the
CIR vs. Suter Code of Commerce, persons prohibited from making
27 SCRA 152 donations to each other are prohibited from entering
G.R. No. L-25532, February 28, 1969 into universal partnerships. (2 Echaverri 196) It follows that
the marriage of partners necessarily brings about the
FACTS: A limited partnership, named "William J. Suter 'Morcoin' Co., dissolution of a pre-existing partnership. (1 Guy de Montella
Ltd.," was formed on 30 September 1947 by herein respondent 58)
William J. Suter as the general partner, and Julia Spirig and Gustav
Carlson, as the limited partners. The partners contributed,
The petitioner-appellant has evidently failed to observe the fact that
respectively, P20,000.00, P18,000.00 and P2,000.00 to the
William J. Suter "Morcoin" Co., Ltd. was not a universal partnership,
partnership. On 1 October 1947, the limited partnership was
but a particular one. As appears from Articles 1674 and 1675 of the
registered with the Securities and Exchange Commission.
Spanish Civil Code, of 1889 (which was the law in force when the
subject firm was organized in 1947), a universal partnership requires
Partners Suter and Spirig got married. Carlson’s share in the either that the object of the association be all the present property of
partnership was sold to the couples. The sale was recorded in SEC. the partners, as contributed by them to the common fund, or else
"all that the partners may acquire by their industry or work during the
existence of the partnership". William J. Suter "Morcoin" Co., Ltd. was
The limited partnership had been filing its income tax returns as a
not such a universal partnership, since the contributions of the
corporation, without objection by the herein petitioner, Commissioner
partners were fixed sums of money, P20,000.00 by William Suter and
of Internal Revenue, until in 1959 when the latter, in an assessment,
P18,000.00 by Julia Spirig and neither one of them was an industrial
consolidated the income of the firm and the individual incomes of the
partner. It follows that William J. Suter "Morcoin" Co., Ltd. was not a
partners-spouses Suter and Spirig resulting in a determination of a
partnership that spouses were forbidden to enter by Article 1677 of
deficiency income tax.
the Civil Code of 1889.

The CTA reversed the CIR on appeal.

Nor could the subsequent marriage of the partners operate to dissolve
it, such marriage not being one of the causes provided for that
purpose either by the Spanish Civil Code or the Code of Commerce.
ISSUE: Whether or not the partnership was dissolved after the
marriage of the partners, respondent William J. Suter and Julia Spirig
Suter and the subsequent sale to them by the remaining partner, The appellant's view, that by the marriage of both partners the
Gustav Carlson. company became a single proprietorship, is equally erroneous. The
capital contributions of partners William J. Suter and Julia Spirig were
separately owned and contributed by them before their marriage; and
HELD: No. after they were joined in wedlock, such contributions remained their
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
22
respective separate property under the Spanish Civil Code (Article himself to pay, he became indebted to it for the remainder,
1396): with interest and any damages occasioned thereby, but the
plaintiff did not thereby acquire the right to demand rescission of the
partnership contract according to article 1124 of the Code. This article
The following shall be the exclusive property of each
cannot be applied to the case in question, because it refers to the
spouse:
resolution of obligations in general, whereas article 1681 and 1682
specifically refer to the contract of partnership in particular. And it is
(a) That which is brought to the marriage as his or her own; a well known principle that special provisions prevail over general
.... provisions.

Thus, the individual interest of each consort in William J. Suter

"Morcoin" Co., Ltd. did not become common property of both after Article 1800
their marriage in 1948.
Chuache and Co. vs. Insurance Commission
It being a basic tenet of the Spanish and Philippine law that the 158 SCRA 366
partnership has a juridical personality of its own, distinct and separate G.R. No. L-55397, February 29, 1988
from that of its partners (unlike American and English law that does
not recognize such separate juridical personality), the bypassing of FACTS: On April 19, 1975, Azucena Palomo obtained a loan from Tai
the existence of the limited partnership as a taxpayer can only be Tong Chuache Inc. in the amount of P100,000.00. To secure the
done by ignoring or disregarding clear statutory mandates and basic payment of the loan, a mortgage was executed over the land and the
principles of our law. The limited partnership's separate individuality building in favor of Tai Tong Chuache & Co. (Exhibit "1" and "1-A").
makes it impossible to equate its income with that of the component On April 25, 1975, Arsenio Chua, representative of Thai Tong Chuache
members. True, section 24 of the Internal Revenue Code merges & Co. insured the latter's interest with Travellers Multi-Indemnity
registered general co-partnerships (compañias colectivas) with the Corporation for P100,000.00 (P70,000.00 for the building and
personality of the individual partners for income tax purposes. But this P30,000.00 for the contents thereof) (Exhibit "A-a," contents
rule is exceptional in its disregard of a cardinal tenet of our partnership
laws, and can not be extended by mere implication to limited
partnerships. On July 31, 1975, the building and the contents were totally razed by
fire. There were 4 insurers of the property. 3 of which paid except
respondent.
Article 1786
Travellers Insurance, on its part, admitted the issuance of the
Policy No. 599 DV and alleged as its special and affirmative defenses
Sancho vs. Lizaraga the following, to wit: that Fire Policy No. 599 DV, covering the
55 Phil 60 furniture and building of complainants was secured by a
G.R. No. L-33580, February 6, 1931 certain Arsenio Chua, mortgage creditor, for the purpose of protecting
his mortgage credit against the complainants; that the policy contains
FACTS: The plaintiff brought an action for the rescission of a an endorsement in favor of Arsenio Chua as his mortgage interest
partnership contract between himself and the defendant, entered into may appear to indicate that insured was Arsenio Chua and the
on October 15, 1920, the reimbursement by the latter of his 50,000 complainants; that the premium due on said fire policy was paid by
peso investment therein, with interest at 12 per cent per annum form Arsenio Chua; that respondent Travellers is not liable to pay
October 15, 1920, with costs, and any other just and equitable remedy complainants.
against said defendant.
On May 31, 1977, Tai Tong Chuache & Co. filed a complaint in
The defendant denies generally and specifically all the allegations of intervention claiming the proceeds of the fire Insurance Policy No. F-
the complaint which are incompatible with his special defenses, cross- 559 DV, issued by respondent Travellers Multi-Indemnity.
complaint and counterclaim, setting up the latter and asking for the
dissolution of the partnership, and the payment to him as its manager Travellers Insurance, in answer to the complaint in intervention,
and administrator of P500 monthly from October 15, 1920, until the alleged that the Intervenor is not entitled to indemnity under its Fire
final dissolution, with interest, one-half of said amount to be charged Insurance Policy for lack of insurable interest before the loss of the
to the plaintiff. He also prays for any other just and equitable remedy. insured premises.

The Court of First Instance of Manila, having heard the cause, Insurance Commission dismissed likewise dismissed petitioner's
and finding it duly proved that the defendant had not complaint in intervention relying on certification in CFI Davao City on
contributed all the capital he had bound himself to invest, and a certain civil case which indicated that “the complainant was Antonio
that the plaintiff had demanded that the defendant liquidate the Lopez Chua and not Tai Tong Chuache & Company.”
partnership, declared it dissolved on account of the expiration of the
period for which it was constituted, and ordered the defendant, as
managing partner, to proceed without delay to liquidate it, submitting It is the contention of the petitioner that respondent Insurance
to the court the result of the liquidation together with the accounts Commission decided an issue not raised in the pleadings of the parties
and vouchers within the period of thirty days from receipt of notice of in that it ruled that a certain Arsenio Lopez Chua is the one entitled
said judgment, without costs. to the insurance proceeds and not Tai Tong Chuache & Company.

ISSUE: Whether or not the defendant is obligated to pay his balance ISSUE: Whether or not the petitioner is real party in interest in the
in the capital promised to the partnship. case which merits its intervention.

HELD: Yes. HELD: Yes.

But even going into the merits of the case, the affirmation of the It will be recalled that respondent insurance company did not assail
judgment appealed from is inevitable. In view of the lower court's the validity of the insurance policy taken out by petitioner over the
findings referred to above, which we cannot revise because the parol mortgaged property. Neither did it deny that the said property was
evidence has not been forwarded to this court, articles 1681 and 1682 totally razed by fire within the period covered by the insurance.
of the Civil Code have been properly applied. Owing to the defendant's Respondent, as mentioned earlier advanced an affirmative defense of
failure to pay to the partnership the whole amount which he bound lack of insurable interest on the part of the petitioner that before the
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
23
occurrence of the peril insured against the Palomos had already paid Feb. 14, 1934
their credit due the petitioner. Respondent having admitted the
material allegations in the complaint, has the burden of proof to show
Received from Mr. George Litton share certificates Nos.
that petitioner has no insurable interest over the insured property at
4428, 4429 and 6699 for 5,000, 5,000 and 7,000 shares
the time the contingency took place. Upon that point, there is a failure
respectively — total 17,000 shares of Big Wedge Mining
of proof. Respondent, it will be noted, exerted no effort to present
Company, which we have sold at P0.11 (eleven centavos)
any evidence to substantiate its claim, while petitioner did. For said
per share or P1,870.00 less 1/2 per cent brokerage.
respondent's failure, the decision must be adverse to it.

HILL & CERON

However, as adverted to earlier, respondent Insurance Commission
absolved respondent insurance company from liability on the basis of
By: (Sgd.) CARLOS CERON
the certification issued by the then Court of First Instance of Davao,
Branch II, that in a certain civil action against the Palomos, Arsenio
Lopez Chua stands as the complainant and not Tai Tong Chuache. Ceron paid to the plaintiff the sum or P1,150 leaving an unpaid
From said evidence respondent commission inferred that the credit balance of P720, and unable to collect this sum either from Hill &
extended by herein petitioner to the Palomos secured by the insured Ceron or from its surety Visayan Surety & Insurance Corporation,
property must have been paid. Such is a glaring error which this Court Litton filed a complaint in the Court of First Instance of Manila against
cannot sanction. Respondent Commission's findings are based upon a the said defendants for the recovery of the said balance. The court,
mere inference. after trial, ordered Carlos Ceron personally to pay the amount claimed
and absolved the partnership Hill & Ceron, Robert Hill and the Visayan
Surety & Insurance Corporation.
The record of the case shows that the petitioner to support its claim
for the insurance proceeds offered as evidence the contract of
mortgage (Exh. 1) which has not been cancelled nor released. It has On appeal to the Court of Appeals, the latter affirmed the decision of
been held in a long line of cases that when the creditor is in possession the court on May 29, 1937, having reached the conclusion that Ceron
of the document of credit, he need not prove non-payment for it is did not intend to represent and did not act for the firm Hill & Ceron in
presumed. 8 The validity of the insurance policy taken b petitioner was the transaction involved in this litigation.
not assailed by private respondent. Moreover, petitioner's claim that
the loan extended to the Palomos has not yet been paid was
corroborated by Azucena Palomo who testified that they are still ISSUE: Whether or not the partnership is liable to petitioner?
indebted to herein petitioner. 9
HELD: Yes.
Public respondent argues however, that if the civil case really
stemmed from the loan granted to Azucena Palomo by petitioner the Accepting, as we cannot but accept, the conclusion arrived at by the
same should have been brought by Tai Tong Chuache or by its Court of Appeals as to the question of fact just mentioned, namely,
representative in its own behalf. From the above premise respondent that Ceron individually entered into the transaction with the plaintiff,
concluded that the obligation secured by the insured property must but in view, however, of certain undisputed facts and of certain
have been paid. regulations and provisions of the Code of Commerce, we reach the
conclusion that the transaction made by Ceron with the
plaintiff should be understood in law as effected by Hill &
The premise is correct but the conclusion is wrong. Citing Rule 3, Sec.
Ceron and binding upon it.
2 10 respondent pointed out that the action must be brought in the
name of the real party in interest. We agree. However, it should be
borne in mind that petitioner being a partnership may sue and be sued In the first place, it is an admitted fact by Robert Hill when he testified
in its name or by its duly authorized representative. The fact that at the trial that he and Ceron, during the partnership, had the same
Arsenio Lopez Chua is the representative of petitioner is not power to buy and sell; that in said partnership Hill as well as Ceron
questioned. Petitioner's declaration that Arsenio Lopez Chua acts as made the transaction as partners in equal parts; that on the date of
the managing partner of the partnership was corroborated by the transaction, February 14, 1934, the partnership between Hill and
respondent insurance company. 11 Thus Chua as the managing Ceron was in existence. After this date, or on February 19th, Hill &
partner of the partnership may execute all acts of Ceron sold shares of the Big Wedge; and when the transaction was
administration 12 including the right to sue debtors of the partnership entered into with Litton, it was neither published in the newspapers
in case of their failure to pay their obligations when it became due nor stated in the commercial registry that the partnership Hill & Ceron
and demandable. Or at the very least, Chua being a partner of had been dissolved.
petitioner Tai Tong Chuache & Company is an agent of the
partnership. Being an agent, it is understood that he acted for and in Accepting, as we cannot but accept, the conclusion arrived at by the
behalf of the firm.13 Public respondent's allegation that the civil case Court of Appeals as to the question of fact just mentioned, namely,
flied by Arsenio Chua was in his capacity as personal creditor of that Ceron individually entered into the transaction with the plaintiff,
spouses Palomo has no basis. but in view, however, of certain undisputed facts and of certain
regulations and provisions of the Code of Commerce, we reach the
The respondent insurance company having issued a policy in favor of conclusion that the transaction made by Ceron with the
herein petitioner which policy was of legal force and effect at the time plaintiff should be understood in law as effected by Hill &
of the fire, it is bound by its terms and conditions. Upon its failure to Ceron and binding upon it.
prove the allegation of lack of insurable interest on the part of the
petitioner, respondent insurance company is and must be held liable. In the first place, it is an admitted fact by Robert Hill when he testified
at the trial that he and Ceron, during the partnership, had the same
Article 1802 power to buy and sell; that in said partnership Hill as well as Ceron
made the transaction as partners in equal parts; that on the date of
the transaction, February 14, 1934, the partnership between Hill and
Ceron was in existence. After this date, or on February 19th, Hill &
Litton vs. Hill and Ceron Ceron sold shares of the Big Wedge; and when the transaction was
67 Phil 609 entered into with Litton, it was neither published in the newspapers
nor stated in the commercial registry that the partnership Hill & Ceron
FACTS: On February 14, 1934, the plaintiff sold and delivered to had been dissolved.
Carlos Ceron, who is one of the managing partners of Hill & Ceron, a
certain number of mining claims, and by virtue of said transaction, the In its decision the Court of Appeals states:
defendant Carlos Ceron delivered to the plaintiff a document reading
as follows:
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
24
But there is a stronger objection to the plaintiff's attempt to partnership. This is evidenced by a receipt identified as Exhibit "A"
make the firm responsible to him. According to the articles wherein the petitioner acknowledged his acceptance of the P4,000.00
of copartnership of 'Hill & Ceron,' filed in the Bureau of by affixing his signature thereto. Furthermore, the private respondent
Commerce. received from the petitioner the amount of P12,000.00 covered by the
latter's Equitable Banking Corporation Check No. 13389470-B from
the profits of the operation of the restaurant for the year 1974.
Sixth. That the management of the business affairs of
the co-partnership shall be entrusted to both co-
partners who shall jointly administer the business affairs, The petitioner denied having received from the private respondent the
transactions and activities of the copartnership, shall jointly amount of P4,000.00. To bolster his contention that he was the sole
open a current account or any other kind of account in any owner of the restaurant, the petitioner presented various government
bank or banks, shall jointly sign all checks for the licenses and permits showing the Sun Wah Panciteria was and still is
withdrawal of funds and shall jointly or singly sign, in the a single proprietorship solely owned and operated by himself alone.
latter case, with the consent of the other partner. . . . Fue Leung also flatly denied having issued to the private respondent
the receipt (Exhibit G) and the Equitable Banking Corporation's Check
No. 13389470 B in the amount of P12,000.00 (Exhibit B).
Under this stipulation, a written contract of the firm can
only be signed by one of the partners if the other partner
consented. Without the consent of one partner, the other Affirmed by the appellate court, the trial court rendered a favorable
cannot bind the firm by a written contract. Now, assuming judgment in favor of complainant (private respondent).
for the moment that Ceron attempted to represent the firm
in this contract with the plaintiff (the plaintiff conceded that ISSUE:Whether or not private respondent is a partner to the
the firm name was not mentioned at that time), the latter restaturant.
has failed to prove that Hill had consented to such contract.
HELD: Yes.
It follows from the sixth paragraph of the articles of partnership of Hill
& Ceron above quoted that the management of the business of the In essence, the private respondent alleged that when Sun Wah
partnership has been entrusted to both partners thereof, but we Panciteria was established, he gave P4,000.00 to the petitioner with
dissent from the view of the Court of Appeals that for one of the the understanding that he would be entitled to twenty-two percent
partners to bind the partnership the consent of the other is necessary. (22%) of the annual profit derived from the operation of the said
Third persons, like the plaintiff, are not bound in entering into a panciteria. These allegations, which were proved, make the private
contract with any of the two partners, to ascertain whether or not this respondent and the petitioner partners in the establishment of Sun
partner with whom the transaction is made has the consent of the Wah Panciteria because Article 1767 of the Civil Code provides that
other partner. The public need not make inquires as to the "By the contract of partnership two or more persons bind themselves
agreements had between the partners. Its knowledge, is enough that to contribute money, property or industry to a common fund, with the
it is contracting with the partnership which is represented by one of intention of dividing the profits among themselves".
the managing partners.
Therefore, the lower courts did not err in construing the complaint as
There is a general presumption that each individual partner is an one wherein the private respondent asserted his rights as partner of
authorized agent for the firm and that he has authority to bind the the petitioner in the establishment of the Sun Wah Panciteria,
firm in carrying on the partnership transactions. (Mills vs. Riggle, 112 notwithstanding the use of the term financial assistance therein. We
Pac., 617.) agree with the appellate court's observation to the effect that "...
given its ordinary meaning, financial assistance is the giving out of
money to another without the expectation of any returns therefrom'.
The presumption is sufficient to permit third persons to hold the firm
It connotes an ex gratia dole out in favor of someone driven into a
liable on transactions entered into by one of members of the firm
state of destitution. But this circumstance under which the P4,000.00
acting apparently in its behalf and within the scope of his authority.
was given to the petitioner does not obtain in this case.' (p. 99, Rollo)
(Le Roy vs. Johnson, 7 U. S. [Law. ed.], 391.)
The complaint explicitly stated that "as a return for such financial
assistance, plaintiff (private respondent) would be entitled to twenty-
two percentum (22%) of the annual profit derived from the operation
Article 1809 of the said panciteria.' (p. 107, Rollo) The well-settled doctrine is that
the '"... nature of the action filed in court is determined by the facts
alleged in the complaint as constituting the cause of action." (De
Fue Leung vs. IAC Tavera v. Philippine Tuberculosis Society, Inc., 113 SCRA 243; Alger
169 SCRA 746 Electric, Inc. v. Court of Appeals, 135 SCRA 37).
G.R. No. 70926, January 31, 1989

The private respondent is a partner of the petitioner in Sun Wah

FACTS: This case originated from a complaint filed by respondent Panciteria. The requisites of a partnership which are — 1) two or more
Leung Yiu with the then Court of First Instance of Manila, Branch II persons bind themselves to contribute money, property, or industry
to recover the sum equivalent to twenty-two percent (22%) of the to a common fund; and 2) intention on the part of the partners to
annual profits derived from the operation of Sun Wah Panciteria since divide the profits among themselves (Article 1767, Civil Code; Yulo v.
October, 1955 from petitioner Dan Fue Leung. Yang Chiao Cheng, 106 Phil. 110)-have been established.

The Sun Wah Panciteria, a restaurant, located at Florentino Torres As stated by the respondent, a partner shares not only in profits but
Street, Sta. Cruz, Manila, was established sometime in October, 1955. also in the losses of the firm. If excellent relations exist among the
It was registered as a single proprietorship and its licenses and partners at the start of business and all the partners are more
permits were issued to and in favor of petitioner Dan Fue Leung as interested in seeing the firm grow rather than get immediate returns,
the sole proprietor. Respondent Leung Yiu adduced evidence during a deferment of sharing in the profits is perfectly plausible. It would be
the trial of the case to show that Sun Wah Panciteria was actually a incorrect to state that if a partner does not assert his rights anytime
partnership and that he was one of the partners having contributed within ten years from the start of operations, such rights are
P4,000.00 to its initial establishment. irretrievably lost. The private respondent's cause of action is premised
upon the failure of the petitioner to give him the agreed profits in the
The private respondents evidence is summarized as follows: operation of Sun Wah Panciteria. In effect the private respondent was
asking for an accounting of his interests in the partnership.

About the time the Sun Wah Panciteria started to become operational,
the private respondent gave P4,000.00 as his contribution to the
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Emance vs. Court of Appeals

370 SCRA 431 (2001) Article 1815
G.R. No. 126334, November 23, 2001
Jo Chung Cang vs. Pacific Commercial
45 Phil 142, September 6, 1923
FACTS: Petitioner Emilio Emnace, Vicente Tabanao and Jacinto
Divinagracia were partners in a business concern known as Ma. Nelma
FACTS: In an insolvency proceedings of petitioner establishment, “ Sociedad Mercantil,
Fishing Industry. Sometime in January of 1986, they decided to
Teck Seing & Co., Ltd. Creditors, Pacific Commercial and others filed a motion with Cost
dissolve their partnership and executed an agreement of partition and
to declare the individual partners parties to the proceeding, for each to file an inventory,
distribution of the partnership properties among them.
and for each to be indicated as insolvent debtors.

Throughout the existence of the partnership, and even after Vicente RTC grand the motion but subsequently denied it.
Tabanao's untimely demise in 1994, petitioner failed to submit to
Tabanao's heirs any statement of assets and liabilities of the ISSUE: Whether the nature of the mercantile establishment, Teck Seing & Co., Ltd. Is
partnership, and to render an accounting of the partnership's a limited partnership.
finances. Petitioner also reneged on his promise to turn over to
Tabanao's heirs the deceased's 1/3 share in the total assets of the HELD: No.
partnership, amounting to P30,000,000.00, or the sum of
P10,000,000.00, despite formal demand for payment thereof.2 The Contract of Partnership established a general partnership.

Consequently, Tabanao' s heirs, respondents herein, filed against By process of elimination, Teck Seing & Co., Ltd. Is not a corporation nor accidental
petitioner an action for accounting, payment of shares, division of partnership (joint account association).
assets and damages.
To establish a limited partnership, there must be, at least, one general partner and the
name of at least one of the general partners must appear in the firm name. This
Petitioner filed a motion to dismiss the complaint on the grounds of requirement has not been fulfilled. Those who seek to avail of the protection of laws
improper venue, lack of jurisdiction over the nature of the action or permitting the creation of limited partnerships must show a substantially full compliance
suit, and lack of capacity of the estate of Tabanao to sue.5 with such laws. It must be noted that all the requirements of the Code have been met
with sole exception of that relation to the composition of the firm name.
The trial court held that the heirs of Tabanao had aright to sue in their
own names, in view of the provision of Article 777 of the Civil Code, The legal intention deducible from the acts of the parties controls in determining the
which states that the rights to the succession are transmitted from existence of a partnership. If they intend to do a thing which in law constitutes a
the moment of the death of the decedent.6 partnership, they are partners although their very purpose is to avoid the creation of
such relation. Here, the intention of the person making up, Teck Seing & Co., Ltd. Was
to establish a partnership which they erroneously denominated as a limited partnership.
On August 8, 1996, the Court of Appeals rendered the assailed
decision,12 dismissing the petition for certiorari, upon a finding that no Order appealed from is reversed.
grave abuse of discretion amounting to lack or excess of jurisdiction
was committed by the trial court in issuing the questioned orders
denying petitioner's motions to dismiss. Article 1816
ISSUE: Whether or not the Heirs have legal capacity to sue.
Compania Maritima vs Munoz
9 Phil 326
G.R. No. L-3704, December 12, 1907
HELD: Yes.

Petitioner asserts that the surviving spouse of Vicente Tabanao has

no legal capacity to sue since she was never appointed as FACTS: On the 31st day of March, 1905, the defendants Francisco
administratrix or executrix of his estate. Petitioner's objection in this Muñoz, Emilio Muñoz, and Rafael Naval formed on ordinary general
regard is misplaced. The surviving spouse does not need to be mercantile partnership under the name of Francisco Muñoz & Sons for
appointed as executrix or administratrix of the estate before she can the purpose of carrying on the mercantile business in the Province of
file the action. She and her children are complainants in their own Albay which had formerly been carried on by Francisco Muñoz.
right as successors of Vicente Tabanao. From the very moment of Francisco Muñoz was a capitalist partner and Emilio Muñoz and Rafael
Vicente Tabanao' s death, his rights insofar as the partnership was Naval were industrial partners.
concerned were transmitted to his heirs, for rights to the succession
are transmitted from the moment of death of the decedent.32 The plaintiff brought this action in the Court of First Instance of Manila
against the partnership of Franciso Muñoz & Sons, and against
Whatever claims and rights Vicente Tabanao had against the Francisco Muñoz de Bustillo, Emilio Muñoz de Bustillo, and Rafael
partnership and petitioner were transmitted to respondents by Naval to recover a sum of money. Judgment was rendered in the court
operation of law, more particularly by succession, which is a mode of below acquitting Emilio Muñoz de Bustillo and Rafael Naval of the
acquisition by virtue of which the property, rights and obligations to complaint, and in favor of the plaintiff and against the defendant
the extent of the value of the inheritance of a person are partnership.
transmitted.33 Moreover, respondents became owners of their
respective hereditary shares from the moment Vicente Tabanao The claim of the appellees that Emilio Muñoz contributed nothing to
died.34 the partnership, either in property, money, or industry, can not be
sustained. He contributed as much as did the other industrial partner,
A prior settlement of the estate, or even the appointment of Salvacion Rafael Naval, the difference between the two being that Rafael Naval
Tabanao as executrix or administratrix, is not necessary for any of the was entitled by the articles of agreement to a fixed salary of P2,500
heirs to acquire legal capacity to sue. As successors who stepped into as long as he was in charge of the branch office established at Ligao.
the shoes of their decedent upon his death, they can commence any If he had left that branch office soon after the partnership was
action originally pertaining to the decedent.35 From the moment of his organized, he would have been in the same condition then that Emilio
death, his rights as a partner and to demand fulfillment of petitioner's Muñoz was from the beginning. Such a change would have deprived
obligations as outlined in their dissolution agreement were him of the salary P2,500, but would not have affected in any way the
transmitted to respondents. They, therefore, had the capacity to sue partnership nor have produced the effect of relieving him from liability
and seek the court's intervention to compel petitioner to fulfill his as a partner.
obligations.
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It is also said in the brief of the appellees that Emilio Muñoz was business. Does this limitation apply only to capitalist partners or does
entirely excluded from the management of the business. It rather it extend also to industrial partners? Article 222 provides that a
should be said that he excluded himself from such management, for general partnership shall be dissolve by the death of one of the
he signed the articles of partnership by the terms of which the general partners unless it is otherwise provided in the articles. Would
management was expressly conferred by him and the others upon the such a partnership continue if all the industrial partners should die?
persons therein named. That partners in their articles can do this, Article 229 provides that upon a dissolution of a general partnership
admits of no doubt. it shall be liquidated by the former managers, but, if all the partners
do not agree to this, a general meeting shall be called, which shall
determine to whom the settlement of the affairs shall be intrusted.
ISSUE: Whether or not Emilio and Rafael are liable despite being
Does this phrase "all the partners" include industrial partners, or are
merely industrial partners.
the capitalist partners the only ones who have a voice in the selection
of a manager during a period of liquidation? Article 237 provides that
HELD: Yes. the private property of the general partners shall not be taken in
payment of the obligations of the partnership until its property has
Articles 140 and 141 of the Code of Commerce are as follows: been exhausted. Does the phrase "the general partners" include
industrial partners?
ART. 140. Should there not have been stated in the articles
of co-partnership the portion of the profits to be received In all of these articles the industrial partners must be
by each partner, said profits shall be divided pro rata, in included. It cannot have been intended that, in such a partnership
accordance with the interest each one has on the co- as the one in question, where there were two industrial and only one
partnership, partners who have not contributed any capital, capitalist partner, the industrial partners should have no voice in the
but giving their services, receiving in the distribution the management of the business when the articles of partnership were
same amount as the partner who contributed the smallest silent on that subject; that when the manager appointed mismanages
capital. the business the industrial partners should have no right to appoint a
comanager; that they should have no right to examine the books; that
ART. 141. Losses shall be charged in the same proportion they might use the firm name in their private business; or that they
among the partners who have contributed capital, without have no voice in the liquidation of the business after dissolution. To
including those who have not, unless by special agreement give a person who contributed no more than, say, P500, these rights
the latter have been constituted as participants therein. and to take them away from a person who contributed his services,
worth, perhaps, infinitely more than P500, would be discriminate
unfairly against industrial partners.
A comparison of these articles with the twelfth paragraph above
quoted will show that the latter is simply a statement of the rule laid
down in the former. The article do not, therefore, change the rights If the phrase "all the partners" as found in the articles other
of the industrial partners as they are declared by the code, and the than article 127 includes industrial partners, then article 127
question may be reduced to the very simple one namely, Is an must include them and they are liable by the terms thereof
industrial partner in an ordinary, general mercantile for the debts of the firm.
partnership liable to third persons for the debts and
obligations contracted by the partnership? But it is said that article 141 expressly declares to the contrary. It is
to be noticed in the first place that this article does not say that they
In limited partnership the Code of Commerce recognizes a difference shall not be liable for losses. Article 140 declares how the profits shall
between general and special partners, but in a general partnership be divided among the partners. This article simply declares how the
there is no such distinction-- all the members are general partners. losses shall be divided among the partners. The use of the words se
The fact that some may be industrial and some capitalist partners imputaran is significant. The verb means abonar una partida a alguno
does not make the members of either of these classes alone such en su cuenta o deducirla de su debito. Article 141 says nothing about
general partners. There is nothing in the code which says that the third persons and nothing about the obligations of the partnership.
industrial partners shall be the only general partners, nor is there
anything which says that the capitalist partners shall be the only While in this section the word "losses" stand's alone, yet in other
general partners. articles of the code, where it is clearly intended to impose the liability
to third persons, it is not considered sufficient, but the word
Article 127 of the Code of Commerce is as follows: "obligations" is added. Thus article 148, in speaking of the liability of
limited partners, uses the phrase las obligaciones y perdidas. There is
the same use of the two same words in article 153, relating to
All the members of the general co-partnership, be they or anonymous partnership. In article 237 the word "obligations" is used
be they not managing partners of the same, are liable and not the word "losses."
personally and in solidum with all their property for the
results of the transactions made in the name and for the
account of the partnership, under the signature of the The claim of the appellees is that this article 141 fixes the liability of
latter, and by a person authorized to make use thereof. the industrial partners to third persons for the obligations of the
company. If it does, then it also fixes the liability of the capitalist
partners to the same persons for the same obligations. If this article
Do the words "all the partners" found in this article include industrial says that industrial partners are not liable for the debts of the concern,
partners? The same expression is found in other articles of the code. it also says that the capitalist partners shall be only liable for such
In article 129 it is said that, if the management of the partnership has debts in proportion to the amount of the money which they have
not been limited by special act to one of the partners, all shall have contributed to the partnership; that is to say, that if there are only
the right to participate in the management. Does this mean that the two capitalist partners, one of whom has contributed two-thirds of the
capitalist partners are the only ones who have that right, or does it capital and the other one-third, the latter is liable to a creditor of the
include also industrial partners? Article 132 provides that, when in the company for only one-third of the debt and the former for only two-
articles of partnership the management has been intrusted to a thirds. It is apparent that, when given this construction, article 141 is
particular person, he can not be deprived of such management, but directly in conflict with article 127. It is not disputed by the appellees
that in certain cases the remaining partners may appoint a co- that by the terms of article 127 each one of the capitalist partners is
manager. Does the phrase "remaining partners" include industrial liable for all of the debts, regardless of the amount of his contribution,
partners, or is it limited to capitalist partners, and do industrial but the construction which they put upon article 141 makes such
partners have no right to participate in the selection of the co- capitalist partners liable for only a proportionate part of the debts.
manager? Article 133 provides that all the partners shall have the right
to examine the books of the partnership. Under this article are the
capitalist partners the only ones who have such right? Article 135 There is no injustice in imposing this liability upon the
provides that the partners can not use the firm name in their private industrial partners. They have a voice in the management of the
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business, if no manager has been named in the articles; they share in the plaintiff but to a stranger to the contract, Galan, who succeeded
the profits and as to third persons it is no more than right that they in getting petitioner's indorsement on the same check persuading the
should share in the obligations. It is admitted that if in this case there latter that the same be deposited in a joint account. In other words,
had been a capitalist partner who had contributed only P100 he would Galan collected from Tropical but failed to turn-over the monies to the
be liable for this entire debt of P26,000. partnership for payment of materials in the contruction.

Delos Reyes vs. Lukban The RTC and Court of Appeals condemned petitioner and Galan to pay
35 Phil 757 intervenors.
G.R. No. 10695, December 15, 1916

FACTS: The subject matter of this suit is an acknowledged debt held

to be owing by a judicial pronouncement contained in a judgment ISSUE: Whether or not partnership existed between petitioner and
rendered in case No. 3759, prosecuted by the creditor Teodor de los respondent Galan.
Reyes against the general partnership of Lukban & Borja, which was
sentenced to pay the said debt. The creditor was unable to collect it HELD: Yes.
in its entirety but recovered only a part thereof, to wit, P522.69, which
was paid by the partner Borja. In order to demonstrate the propriety The records will show that the petitioner entered into a con-tract with
of the judgment appealed from, rendered against the parties who Tropical for the renovation of the latter's building on behalf of the
were the partners of the said firm, we shall confine ourselves in this partnership of "Galan and Muñasque." This is readily seen in the first
decision to the four errors assigned to the said judgment by the paragraph of the contract where it states:
defendant Lukban.
This agreement made this 20th day of December in the year
The other defendant, Vicente Lukban, in his amended answer set forth 1966 by Galan and Muñasque hereinafter called the
xxxx; (3) that the defendant Lukban was merely an industrial partner Contractor, and Tropical Commercial Co., Inc., hereinafter
in the firm of Lukban & Borja, Espiridion Borja being the partner called the owner do hereby for and in consideration agree
thereof who furnished the capital; xxxx on the following: ... .

There is nothing in the records to indicate that the partner-ship

ISSUE: Whether plaintiff may go after the partners individually and organized by the two men was not a genuine one. If there was a
especially Lukban despite being merely an industrial partner. falling out or misunderstanding between the partners, such does not
convert the partnership into a sham organization.
HELD:

Teodoro de los Reyes is entitled to collect individually from the Likewise, when Muñasque received the first payment of Tropical in
the amount of P7,000.00 with a check made out in his name, he
partners Lukban and Borja the amount of the debt that the dissolved
partnership owed at the time of its dissolution, it is unquestionable indorsed the check in favor of Galan. Respondent Tropical therefore,
that such a right has given rise to the corresponding right of action to had every right to presume that the petitioner and Galan were true
demand the payment of the debt from the partners individually, or partners. If they were not partners as petitioner claims, then he has
from each of them, by the insolvency of the partnership, inasmuch as only himself to blame for making the relationship appear otherwise,
they are personally and severally liable with all their property for the not only to Tropical but to their other creditors as well. The payments
results of the operations of the partnership which they conducted. made to the partnership were, therefore, valid payments.

Article 127 of the Code of Commerce provides: In the case of Singsong v. Isabela Sawmill (88 SCRA 643),we ruled:

All the member of the general co-partnership, be they or be had acted in good faith, the appellees also acted in good
they not managing partners of the same, are personally and faith in extending credit to the partnership. Where one of
two innocent persons must suffer, that person who gave
severally liable with all their property for the results of the
transactions made in the name and for the account of the occasion for the damages to be caused must bear the
consequences.
partnership, under the signature of the latter, and by a
person authorized to make use thereof.
No error was committed by the appellate court in holding that the
payment made by Tropical to Galan was a good payment which binds
Article 1818 both Galan and the petitioner. Since the two were partners when the
debts were incurred, they, are also both liable to third persons who
extended credit to their partnership. In the case of George Litton v.
Hill and Ceron, et al, (67 Phil. 513, 514), we ruled:
Munasque vs. Court of Appeals
139 SCRA 533
G.R. No. L-39780, November 11, 1985 There is a general presumption that each individual partner
is an authorized agent for the firm and that he has authority
to bind the firm in carrying on the partnership transactions.
FACTS: Petitioner Elmo Muñasque filed a complaint for payment of
(Mills vs. Riggle,112 Pan, 617).
sum of money and damages against respondents Celestino Galan,
Tropical Commercial, Co., Inc. (Tropical) and Ramon Pons, alleging
that the petitioner entered into a contract with respondent Tropical The presumption is sufficient to permit third
through its Cebu Branch Manager Pons for remodelling a portion of persons to hold the firm liable on transactions
its building without exchanging or expecting any consideration from entered into by one of members of the firm acting
Galan although the latter was casually named as partner in the apparently in its behalf and within the scope of
contract; that by virtue of his having introduced the petitioner to the his authority. (Le Roy vs. Johnson, 7 U.S. (Law.
employing company (Tropical), Galan would receive some kind of ed.), 391.)
compensation in the form of some percentages or commission; that
Tropical, under the terms of the contract, agreed to give petitioner
the amount of P7,000.00 soon after the construction began and Giquiolay vs. Sycip
thereafter, the amount of P6,000.00 every fifteen (15) days during 105 Phil 984
the construction to make a total sum of P25,000.00; that on January G.R. No. L-11840, July 26, 1960
9, 1967, Tropical and/or Pons delivered a check for P7,000.00 not to
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FACTS: It would appear that on May 29, 1940, Tan Sin An and "There is a general presumption that each individual
Antonio C. Goquiolay", entered into a general commercial partnership partner is an agent for the firm and that he has authority
under the partnership name "Tan Sin An and Antonio C. Goquiolay", to bind the firm in carrying on the partnership transactions."
for the purpose in dealing in real state. The agreement lodge upon [Mills vs. Riggle, 112 Pac., 617]
Tan Sin An the sole management of the partnership affairs, stipulating
that —
"The presumption is sufficient to permit third persons to
hold the firm liable on transactions entered into by one of
III. The co-partnership shall be composed of said Tan Sin the members of the firm acting apparently in its behalf and
An as sole managing and partner (sic), and Antonio C. within the scope of his authority." [Le Roy vs. Johnson, 7
Goquiolay as co-partner. U.S. Law, Ed., 391] (George Litton vs. Hill & Ceron, et al.,
67 Phil., 513-514).
IV. The affairs of co-partnership shall be managed
exclusively by the managing and partner (sic) or by his We are not unaware of the provision of Article 129 of the Code of
authorized agent, and it is expressly stipulated that the Commerce to the effect that —
managing and partner (sic) may delegate the entire
management of the affairs of the co-partnership by
If the management of the general partnership has not been
irrevocable power of attorney to any person, firm or
limited by special agreement to any of the members, all
corporation he may select upon such terms as regards
shall have the power to take part in the direction and
compensation as he may deem proper, and vest in such
management of the common business, and the members
persons, firm or corporation full power and authority, as the
present shall come to an agreement for all contracts or
agent of the co-partnership and in his name, place and
obligations which may concern the association. (Emphasis
stead to do anything for it or on his behalf which he as such
supplied)
managing and partner (sic) might do or cause to be done.

but this obligation is one imposed by law on the partners among

The lifetime of the partnership was fixed at ten (10) years and also
themselves, that does not necessarily affect the validity of the acts of
that —
a partner, while acting within the scope of the ordinary course of
business of the partnership, as regards third persons without notice.
In the event of the death of any of the partners at any time The latter may rightfully assume that the contracting partner was duly
before the expiration of said term, the co-partnership shall authorized to contract for and in behalf of the firm and that,
not be dissolved but will have to be continued and the furthermore, he would not ordinarily act to the prejudice of his co-
deceased partner shall be represented by his heirs or partners. The regular course of business procedure does not require
assigns in said co-partnership (Art. XII, Articles of Co- that each time a third person contracts with one of the managing
Partnership). partners, he should inquire as to the latter's authority to do so, or that
he should first ascertain whether or not the other partners had given
their consent thereto. In fact, Article 130 of the same Code of
The Plaintiff partnership "Tan Sin An and Goquiolay" purchased many
Commerce provides that even if a new obligation was contracted
parcels of land, few of which involves assumption of payment of a
against the express will of one of the managing partners, "it shall not
mortgage obligation, payable to "La Urbana Sociedad Mutua de
be annulled for such reason, and it shall produce its effects without
Construccion y Prestamos" which was later on succeeded by "Banco
prejudice to the responsibility of the member or members who
Hipotecario de Filipinas" (as successor to "La Urbana"). Covenantors
contracted it, for the damages they may have caused to the common
bound themselves to pay, jointly and severally.
fund."

On March 29, 1949, Kong Chai Pin filed a petition with the probate
Although the partnership under consideration is a commercial
court for authority to sell all the 49 parcels of land to Washington Z,
partnership and, therefore, to be governed by the Code of Commerce,
Sycip and Betty Y. Lee, for the purpose preliminary of settling the
the provisions of the old Civil Code may give us some light on the right
aforesaid debts of Tan Sin An and the partnership.
of one partner to bind the partnership. States Art. 1695 thereof:

ISSUE:
Should no agreement have been made with respect to the
form of management, the following rules shall be observed:
1) Whether or not the consent of the other partners was
necessary to perfect the sale of the partnership properties
to Washington Sycip and Betty Lee. 1. All the partners shall be considered agents, and whatever
any one of the may do individually shall bind the
2) Whether Kong Chai Pin succeeded her husband in the sole partnership; but each one may oppose any act of the others
management of the partnership. before it has become legally binding.
HELD:
The records fail to disclose that appellant Goquiolay made any
1) No.
opposition to the sale of the partnership realty to Washington Z. Sycip
and Betty Lee; on the contrary, it appears that he (Goquiolay) only
The answer is, we believe, in the negative. Strangers dealing with a
interposed his objections after the deed of conveyance was executed
partnership have the right to assume, in the absence of restrictive
and approved by the probate court, and, consequently, his opposition
clauses in the co-partnership agreement, that every general partner
came too late to be effective.
has power to bind the partnership, especially those partners acting
with ostensible authority. And so, we held in one case:
2) No.
. . . Third persons, like the plaintiff, are not bound in
entering into a contract with any of the two partners, to There is a merit in the contention that the lower court erred in holding
ascertain whether or not this partner with whom the that the widow, Kong Chai Pin, succeeded her husband, Tan Sin An,
transaction is made has the consent of the other partner. in the sole management of the partnership, upon the latter's death.
The public need not make inquiries as to the agreements While, as we previously stated in our narration of facts, the Articles of
had between the partners. Its knowledge is enough that it Co-Partnership and the power of attorney executed by Antonio
is contracting with the partnership which is represented by Goquiolay, conferred upon Tan Sin An the exclusive management of
one of the managing partners. the business, such power, premised as it is upon trust and confidence,
was a mere personal right that terminated upon Tan's demise. The
provision in the articles stating that "in the event of death of any one
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29
of the partners within the 10-year term of the partnership, the The RTC declared Syjuco in default and a judgment by default was
deceased partner shall be represented by his heirs", could not have rendered, declaring void the mortgage in question because executed
referred to the managerial right given to Tan Sin An; more by the Lims without authority from the partnership which was and had
appropriately, it related to the succession in the proprietary interest been since March 30,1959 the exclusive owner of the mortgaged
of each partner. The covenant that Antonio Goquiolay shall have no property, and making permanent an injunction against the foreclosure
voice or participation in the management of the partnership, being a sale that had issued on January 14,1983
limitation upon his right as a general partner, must be held
coextensive only with Tan's right to manage the affairs, the contrary
While the Lims, through their partnership ("Heirs of Hugo Lim"), were
not being clearly apparent.
prosecuting their action in the sala of Judge Castro, as above
narrated, Syjuco once again tried to proceed with the foreclosure after
Upon the other hand, consonant with the articles of co-partnership entry of judgment had been made in G.R. No. 56014 on March 22,
providing for the continuation of the firm notwithstanding the death 1983. It scheduled the auction sale on July 30, 1983. But once again
of one of the partners, the heirs of the deceased, by never repudiating it was frustrated. Another obstacle was put up by the Lims and their
or refusing to be bound under the said provision in the articles, counsel, Atty. Canlas. This time by the judgment by default rendered
became individual partners with Antonio Goquiolay upon Tan's by Judge Castro in Civil Case No. Q- 36485.
demise. The validity of like clauses in partnership agreements is
expressly sanctioned under Article 222 of the Code of Commerce.2
On July 17,1984, Syjuco filed in said Civil Case No. Q-36485 a motion
for reconsideration of the decision and for dismissal of the action,
Minority of the heirs is not a bar to the application of that clause in alleging that it had never been served with summons; and that the
the articles of co-partnership (2 Vivante, Tratado de Derecho action should be dismissed on the ground of bar by prior judgment
Mercantil, 493; Planiol, Traite Elementaire de Droit Civil, English premised on the final decisions of the Supreme Court in G.R. No. L-
translation by the Louisiana State Law Institute, Vol. 2, Pt. 2, p. 177). 45752 and G.R. No. 56014.

Syjuco questioned the ruling in Civil Case No. Q-36485 stating among
Article 1819 others: “it appearing that the mortgaged property remained
registered in the names of the individual members of the Lim family
notwithstanding that the property had supposedly been conveyed to
Santiago vs. Castro the plaintiff partnership long before the execution of the mortgage
175 SCRA 171 and its amendments,-and that even assuming ownership of the
property by the partnership, the mortgage executed by all the
FACTS: These involves several civil cases involving foreclosure of partners was valid and binding under Articles 1811 and 1819
properties mortgage to Petitioner by private respondents. of the Civil Code.

Private respondents were the heirs of Hugo Lim who, through Eugenio ISSUE: Whether or not the mortgage was binding pursuant to Article
Lim, mortgaged the properties to petitioner. Unable to pay, the 1819 on the law of partnership.
properties were subjected foreclosure proceedings which the
Supreme Court has ruled to be executed. Prior to this ruling of the HELD: Yes.
Court, the private respondents took efforts by filing different cases
and appeals to different courts to forestall execution of the foreclosure It is time to write finis to this unedifying narrative which is notable
until the Supreme Court ruled in 1982 to finally execute the same. chiefly for the deception, deviousness and trickery which have marked
the private respondents' thus far successful attempts to avoid the
However, Twelve (12) days after the Lims were served, as above payment of a just obligation.
mentioned, with notice of this Court's judgment in G.R. No. 56014, or
on October 14,1982, they caused the filing with the Regional Trial The Court cannot but condemn in the strongest terms this trifling with
Court of Quezon City of still another action, the third, also designed, the judicial process which degrades the administration of justice,
like the first two, to preclude enforcement of the mortgage held by mocks, subverts and misuses that process for purely dilatory
Syjuco. purposes, thus tending to bring it into disrepute, and seriously erodes
public confidence in the will and competence of the courts to dispense
This time the complaint was presented, not in their individual names, swift justice.
but in the name of a partnership of which they themselves were the
only partners: "Heirs of Hugo Lim." The complaint advocated the xxxx
theory that the mortgage which they, together with their mother, had
individually constituted (and thereafter amended during the period
from 1964 to 1967) over lands standing in their names in the Property Equally or even more preclusive of the respondent partnership's claim
Registry as owners pro indiviso, in fact no longer belonged to them at to the mortgaged property is the last paragraph of Article 1819 of the
that time, having been earlier deeded over by them to the partnership, Civil Code, which contemplates a situation duplicating the
"Heirs of Hugo Lim", more precisely, on March 30, 1959, hence, said circumstances that attended the execution of the mortgage in favor
mortgage was void because executed by them without authority from of Syjuco and therefore applies foursquare thereto:
the partnership.
Where the title to real property is in the names of all the
The case, docketed as Civil Case No. Q-39295, was assigned to Branch partners a conveyance executed by all the partners passes
35 of the Quezon City Regional Trial Court, then presided over by all their rights in such property.
Judge Jose P. Castro. The court issued TRO effected by the Sherriff
where he: The term "conveyance" used in said provision, which is taken from
Section 10 of the American Uniform Partnership Act, includes a
.. served personally and left a copy of summons mortgage.
together with a copy of Complaint
Interpreting Sec. 10 of the Uniform Partnership Act, it has
In any event, as it was to claim later, Syjuco asserts that it was never been held that the right to mortgage is included in the right
so served with summons, or with any other notice, pleading, or motion to convey. This is different from the rule in agency that a
relative to the case, for that matter. special power to sell excludes the power to mortgage (Art.
1879).
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
30
As indisputable as the propositions and principles just stated is that Tropical, under the terms of the contract, agreed to give petitioner
the cause of action in Civil Case No. Q-36485 is barred by prior the amount of P7,000.00 soon after the construction began and
judgment. The right subsumed in that cause is the negation of the thereafter, the amount of P6,000.00 every fifteen (15) days during
mortgage, postulated on the claim that the parcels of land mortgaged the construction to make a total sum of P25,000.00; that on January
by the Lims to Syjuco did not in truth belong to them but to the 9, 1967, Tropical and/or Pons delivered a check for P7,000.00 not to
partnership. Assuming this to be so, the right could have been the plaintiff but to a stranger to the contract, Galan, who succeeded
asserted at the time that the Lims instituted their first action on in getting petitioner's indorsement on the same check persuading the
December 24, 1968 in the Manila Court of First Instance, Civil Case latter that the same be deposited in a joint account. In other words,
No. 75180, or when they filed their subsequent actions: Civil Case No. Galan collected from Tropical but failed to turn-over the monies to the
112762, on December 19, 1977; Civil Case No. 83-19018, in 1983, partnership for payment of materials in the contruction.
and Civil Case No. Q-39294, also in 1983. The claim could have been
set up by the Lims, as members composing the partnership, "Heirs of
The RTC and Court of Appeals condemned petitioner and Galan to pay
Hugo Lim." It could very well have been put forth by the partnership
intervenors.
itself, as co-plaintiff in the corresponding complaints, considering that
the actions involved property supposedly belonging to it and were
being prosecuted by the entire membership of the partnership, and ISSUE: Whether the partnership is liable to intervenors or should be
therefore, the partnership was in actuality, the real party in interest. shouldered only by Galan.
In fact, consistently with the Lims' theory, they should be regarded,
in all the actions presented by them, as having sued for vindication, HELD: Partnership is liable to intervenors.
not of their individual rights over the property mortgaged, but those
of the partnership. There is thus no reason to distinguish between the While it is true that under Article 1816 of the Civil Code,"All partners,
Lims, as individuals, and the partnership itself, since the former including industrial ones, shall be liable prorate with all their property
constituted the entire membership of the latter. In other words, and after all the partnership assets have been exhausted, for the
despite the concealment of the existence of the partnership, for all contracts which may be entered into the name and for the account of
intents and purposes and consistently with the Lims' own theory, it the partnership, under its signature and by a person authorized to act
was that partnership which was the real party in interest in all the for the partner-ship. ...". this provision should be construed together
actions; it was actually represented in said actions by all the individual with Article 1824 which provides that: "All partners are liable solidarily
members thereof, and consequently, those members' acts, with the partnership for everything chargeable to the partnership
declarations and omissions cannot be deemed to be simply the under Articles 1822 and 1823." In short, while the liability of the
individual acts of said members, but in fact and in law, those of the partners are merely joint in transactions entered into by the
partnership. partnership, a third person who transacted with said partnership can
hold the partners solidarily liable for the whole obligation if the case
of the third person falls under Articles 1822 or 1823.
What was done by the Lims — or by the partnership of which they
were the only members-was to split their cause of action in violation
of the well known rule that only one suit may be instituted for a single Articles 1822 and 1823 of the Civil Code provide:
cause of action. 44 The right sought to be enforced by them in all their
actions was, at bottom, to strike down the mortgage constituted in Art. 1822. Where, by any wrongful act or omission of any
favor of Syjuco, a right which, in their view, resulted from several partner acting in the ordinary course of the business of the
circumstances, namely that the mortgage was constituted over partner-ship or with the authority of his co-partners, loss or
property belonging to the partnership without the latter's authority; injury is caused to any person, not being a partner in the
that the principal obligation thereby secured was usurious; that the partnership or any penalty is incurred, the partnership is
publication of the notice of foreclosure sale was fatally defective, liable therefor to the same extent as the partner so acting
circumstances which had already taken place at the time of the or omitting to act.
institution of the actions. They instituted four (4) actions for the same
purpose on one ground or the other, making each ground the subject
of a separate action. Upon these premises, application of the sanction Art. 1823. The partnership is bound to make good:
indicated by law is caned for, i.e., the judgment on the merits in any
one is available as a bar in the others. (1) Where one partner acting within the scope of his
apparent authority receives money or property of a third
What has been said makes unnecessary any further proceedings in person and misapplies it; and
the Court below, which might otherwise be indicated by the
consideration that two of the postulates of petitioner's unresolved (2) Where the partnership in the course of its business
motions which the Court considers equally as decisive as res judicata, receives money or property of a third person and t he
to wit: estoppel by silence and Article 1819, last paragraph, of the money or property so received is misapplied by any partner
Civil Code, do not constitute grounds for a motion to dismiss under while it is in the custody of the partnership.
rule 16, of the Rules of Court. Such a step would only cause further
delay. And delay has been the bane of petitioner's cause, defying
through all these years all its efforts to collect on a just debt. The obligation is solidary, because the law protects him, who in good
faith relied upon the authority of a partner, whether such authority is
real or apparent. That is why under Article 1824 of the Civil Code all
Article 1822 - 1823 partners, whether innocent or guilty, as well as the legal entity which
is the partnership, are solidarily liable.
Munasque vs. Court of Appeals
139 SCRA 533 In the case at bar the respondent Tropical had every reason to believe
G.R. No. L-39780, November 11, 1985 that a partnership existed between the petitioner and Galan and no
fault or error can be imputed against it for making payments to "Galan
FACTS: Petitioner Elmo Muñasque filed a complaint for payment of and Associates" and delivering the same to Galan because as far as it
sum of money and damages against respondents Celestino Galan, was concerned, Galan was a true partner with real authority to
Tropical Commercial, Co., Inc. (Tropical) and Ramon Pons, alleging transact on behalf of the partnership with which it was dealing. This
that the petitioner entered into a contract with respondent Tropical is even more true in the cases of Cebu Southern Hardware and Blue
through its Cebu Branch Manager Pons for remodelling a portion of Diamond Glass Palace who supplied materials on credit to the
its building without exchanging or expecting any consideration from partnership. Thus, it is but fair that the consequences of any wrongful
Galan although the latter was casually named as partner in the act committed by any of the partners therein should be answered
contract; that by virtue of his having introduced the petitioner to the solidarily by all the partners and the partnership as a whole
employing company (Tropical), Galan would receive some kind of
compensation in the form of some percentages or commission; that
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
31
However. as between the partners Muñasque and Galan,justice also terminated, as these were not included in the Eligibility Documents.
dictates that Muñasque be reimbursed by Galan for the payments These Agreements are as follows:
made by the former representing the liability of their partnership to
herein intervenors, as it was satisfactorily established that Galan acted
· A Memorandum of Agreement between MPEI and SK C&C
in bad faith in his dealings with Muñasque as a partner.

Information Technology vs. COMELEC · A Memorandum of Agreement between MPEI and WeSolv
G.R. No. 159139, January 13, 2004
· A "Teaming Agreement" between MPEI and Election.com
FACTS: In the present case, the Commission on Elections approved Ltd.
the assailed Resolution and awarded the subject Contract not only in
clear violation of law and jurisprudence, but also in reckless disregard
· A "Teaming Agreement" between MPEI and ePLDT
of its own bidding rules and procedure. For the automation of the
counting and canvassing of the ballots in the 2004 elections, Comelec
awarded the Contract to "Mega Pacific Consortium" an entity that had In sum, each of the four different and separate bilateral Agreements
not participated in the bidding. Despite this grant, the poll body signed is valid and binding only between MPEI and the other contracting
the actual automation Contract with "Mega Pacific eSolutions, Inc.," a party, leaving the other "consortium" members total strangers
company that joined the bidding but had not met the eligibility thereto. Under this setup, MPEI dealt separately with each of the
requirements. "members," and the latter (WeSolv, SK C&C, Election.com, and
ePLDT) in turn had nothing to do with one another, each dealing only
with MPEI.
On January 28, 2003, the Commission issued an "Invitation to Apply
for Eligibility and to Bid,"
ISSUE:
On February 17, 2003, the poll body released the Request for Proposal
(RFP) to procure the election automation machines. The Bids and 1. Whether or not there exist a consortium between and
Awards Committee (BAC) of Comelec convened a pre-bid conference among the members of the putative consortium.
on February 18, 2003 and gave prospective bidders until March 10,
2003 to submit their respective bids. 2. Whether the parties to the 4 separate and distinct bilateral
agreements are jointly and severally liable to COMELEC.
Among others, the RFP provided that bids from manufacturers,
suppliers and/or distributors forming themselves into a joint venture
HELD:
may be entertained, provided that the Philippine ownership thereof
shall be at least 60 percent. Joint venture is defined in the RFP as "a
1. No.
group of two or more manufacturers, suppliers and/or distributors
that intend to be jointly and severally responsible or liable for a
particular contract."11 On the question of the identity and the existence of the real bidder,
respondents insist that, contrary to petitioners’ allegations, the bidder
was not Mega Pacific eSolutions, Inc. (MPEI), which was incorporated
Basically, the public bidding was to be conducted under a two-
only on February 27, 2003, or 11 days prior to the bidding itself.
envelope/two stage system. The bidder’s first envelope or the
Rather, the bidder was Mega Pacific Consortium (MPC), of which MPEI
Eligibility Envelope should establish the bidder’s eligibility to bid and
was but a part. As proof thereof, they point to the March 7, 2003 letter
its qualifications to perform the acts if accepted.
of intent to bid, signed by the president of MPEI allegedly for and on
behalf of MPC. They also call attention to the official receipt issued to
Out of the 57 bidders,13 the BAC found MPC and the Total MPC, acknowledging payment for the bidding documents, as proof
Information Management Corporation (TIMC) eligible. For that it was the "consortium" that participated in the bidding process.
technical evaluation, they were referred to the BAC’s Technical
Working Group (TWG) and the Department of Science and
We do not agree. The March 7, 2003 letter, signed by only one
Technology (DOST).
signatory -- "Willy U. Yu, President, Mega Pacific eSolutions, Inc.,
(Lead Company/ Proponent) For: Mega Pacific Consortium" -- and
In its Report on the Evaluation of the Technical Proposals on Phase without any further proof, does not by itself prove the existence of
II, DOST said that both MPC and TIMC had obtained a number of the consortium. It does not show that MPEI or its president have been
failed marks in the technical evaluation. Notwithstanding these duly pre-authorized by the other members of the putative consortium
failures, Comelec en banc, on April 15, 2003, promulgated to represent them, to bid on their collective behalf and, more
Resolution No. 6074 awarding the project to MPC. The important, to commit them jointly and severally to the bid
Commission publicized this Resolution and the award of the project to undertakings. The letter is purely self-serving and uncorroborated.
MPC on May 16, 2003.
Neither does an official receipt issued to MPC, acknowledging
On May 29, 2003, five individuals and entities (including the herein payment for the bidding documents, constitute proof that it was the
Petitioners Information Technology Foundation of the Philippines, purported consortium that participated in the bidding. Such receipts
represented by its president, Alfredo M. Torres; and Ma. Corazon are issued by cashiers without any legally sufficient inquiry as to the
Akol) wrote a letter14 to Comelec Chairman Benjamin Abalos Sr. They real identity orexistence of the supposed payor.
protested the award of the Contract to Respondent MPC "due
to glaring irregularities in the manner in which the bidding
To assure itself properly of the due existence (as well as eligibility and
process had been conducted." Citing therein the noncompliance
qualification) of the putative consortium, Comelec’s BAC should have
with eligibility as well as technical and procedural requirements (many
examined the bidding documents submitted on behalf of MPC. They
of which have been discussed at length in the Petition), they sought
would have easily discovered the following fatal flaws.
a re-bidding.

Two-Envelope, Two-Stage System

In Oral Arguments at SC, instead of one multilateral agreement
executed by, and effective and binding on, all the five "consortium
members" -- as earlier claimed by Commissioner Tuason in open court As stated earlier in our factual presentation, the public bidding system
-- it turns out that what was actually executed were four (4) separate designed by Comelec under its RFP (Request for Proposal for the
and distinct bilateral Agreements.42 Obviously, Comelec was furnished Automation of the 2004 Election) mandated the use of a two-
copies of these Agreements only after the bidding process had been envelope, two-stage system.
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
32
The Eligibility Envelope was to contain legal documents such as Obviously, given the differences in their relationships, their respective
articles of incorporation, business registrations, licenses and permits, liabilities cannot be the same. Precisely, the very clear terms and
mayor’s permit, VAT certification, and so forth; technical documents stipulations contained in the MOAs and the Teaming Agreements --
containing documentary evidence to establish the track record of the entered into by MPEI with SK C&C, WeSolv, Election.com and ePLDT
bidder and its technical and production capabilities to perform the -- negate the idea that these "members" are on a par with one another
contract; and financial documents, including audited financial and are, as such, assuming the same joint and several liability.
statements for the last three years, to establish the bidder’s financial
capacity.
Enforcement of Liabilities Under the Civil Code Not Possible

In the case of a consortium or joint venture desirous of participating

In any event, it is claimed that Comelec may still enforce the liability
in the bidding, it goes without saying that the Eligibility Envelope
of the "consortium" members under the Civil Code provisions on
would necessarily have to include a copy of the joint venture
partnership, reasoning that MPEI et al. represented themselves as
agreement, the consortium agreement or memorandum of
partners and members of MPC for purposes of bidding for the Project.
agreement -- or a business plan or some other instrument of similar
They are, therefore, liable to the Comelec to the extent that the latter
import -- establishing the due existence, composition and scope of
relied upon such representation. Their liability as partners is solidary
such aggrupation. Otherwise, how would Comelec know who it was
with respect to everything chargeable to the partnership under certain
dealing with, and whether these parties are qualified and capable of
conditions.
delivering the products and services being offered for bidding?32

The Court has two points to make with respect to this argument.
In the instant case, no such instrument was submitted to
First, it must be recalled that SK C&C, WeSolv, Election.com and
Comelec during the bidding process. However, there is no sign
ePLDT never represented themselves as partners and members of
whatsoever of any joint venture agreement, consortium agreement,
MPC, whether for purposes of bidding or for something else. It was
memorandum of agreement, or business plan executed among the
MPEI alone that represented them to be members of a "consortium"
members of the purported consortium. The only logical conclusion is
it supposedly headed. Thus, its acts may not necessarily be held
that no such agreement was ever submitted to the Comelec for its
against the other "members."
consideration, as part of the bidding process.

Second, this argument of the OSG in its Memorandum44 might

It thus follows that, prior the award of the Contract, there was no
possibly apply in the absence of a joint venture agreement or some
documentary or other basis for Comelec to conclude that a
other writing that discloses the relationship of the "members" with
consortium had actually been formed amongst MPEI, SK C&C
one another. But precisely, this case does not deal with a situation in
and WeSolv, along with Election.com and ePLDT.33 Neither was
which there is nothing in writing to serve as reference, leaving
there anything to indicate the exact relationships between and among
Comelec to rely on mere representations and therefore justifying a
these firms; and the precise nature and extent of their respective
falling back on the rules on partnership. For, again, the terms and
liabilities with respect to the contract being offered for bidding. And
stipulations of the MOAs entered into by MPEI with SK C&C and
apart from the self-serving letter of March 7, 2003, there was not even
WeSolv, as well as the Teaming Agreements of MPEI with
any indication that MPEI was the lead company duly authorized to act
Election.com and ePLDT (copies of which have been furnished the
on behalf of the others.
Comelec) are very clear with respect to the extent and the limitations
of the firms’ respective liabilities.
So, it necessarily follows that, during the bidding process, Comelec
had no basis at all for determining that the alleged
In the case of WeSolv and SK C&C, their MOAs state that their
consortium really existed and was eligible and qualified; and
liabilities, while joint and several with MPEI, are limited only to the
that the arrangements among the members were satisfactory and
particular areas of work wherein their services are engaged or their
sufficient to ensure delivery on the Contract and to protect the
products utilized. As for Election.com and ePLDT, their separate
government’s interest.
"Teaming Agreements" specifically ascribe to them the role of
subcontractor vis-à-vis MPEI as contractor and, based on the terms of
2. No.
their particular agreements, neither Election.com nor ePLDT is, with
MPEI, jointly and severally liable to Comelec.45 It follows then that in
In sum, each of the four different and separate bilateral Agreements the instant case, there is no justification for anyone, much less
is valid and binding only between MPEI and the other contracting Comelec, to resort to the rules on partnership and partners’ liabilities.
party, leaving the other "consortium" members total strangers
thereto. Under this setup, MPEI dealt separately with each of the
"members," and the latter (WeSolv, SK C&C, Election.com, and Article 1830
ePLDT) in turn had nothing to do with one another, each dealing only
with MPEI.
Ortega vs. Court of Appeals
245 SCRA 529
Respondents assert that these four Agreements were sufficient for the G.R. No. 109248 July 3, 1995
purpose of enabling the corporations to still qualify (even at that late
stage) as a consortium or joint venture, since the first two Agreements FACTS: Respondent Misa, is a partner at BITO, MISA & LOZADA Law
had allegedly set forth the joint and several undertakings among the Firm.
parties, whereas the latter two clarified the parties’ respective roles
with regard to the Project, with MPEI being the independent On February 17, 1988, petitioner-appellant wrote the respondents-
contractor and Election.com and ePLDT the subcontractors. appellees a letter stating:

Third and last, we fail to see how respondents can arrive at the I am withdrawing and retiring from the firm of Bito, Misa
conclusion that, from the above-quoted provisions, it can be and Lozada, effective at the end of this month.
immediately established that each of the members of MPC assumes
the same joint and several liability as the other members. Earlier,
respondents claimed exactly the opposite -- that the two MOAs "I trust that the accountants will be instructed to make the
(between MPEI and SK C&C, and between MPEI and WeSolv) had set proper liquidation of my participation in the firm."
forth the joint and several undertakings among the parties; whereas
the two Teaming Agreements clarified the parties’ respective roles On 30 June 1988, petitioner filed with this Commission's Securities
with regard to the Project, with MPEI being the independent Investigation and Clearing Department (SICD) a petition for
contractor and Election.com and ePLDT the subcontractors. dissolution and liquidation of partnership, docketed as SEC Case No.
3384 praying that the Commission:
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
33
"1. Decree the formal dissolution and order the immediate 2. No.
liquidation of (the partnership of) Bito,
The dissolution of a partnership is the change in the relation of the
On 31 March 1989, the hearing officer rendered a decision ruling that: parties caused by any partner ceasing to be associated in the carrying
"[P]etitioner's withdrawal from the law firm Bito, Misa & Lozada did on, as might be distinguished from the winding up of, the
not dissolve the said law partnership. business.8 Upon its dissolution, the partnership continues and its legal
personality is retained until the complete winding up of its business
culminating in its termination.9
On appeal, the SEC en banc reversed the decision of the Hearing
Officer and held that the withdrawal of Attorney Joaquin L. Misa had
dissolved the partnership of "Bito, Misa & Lozada." The liquidation of the assets of the partnership following its dissolution
is governed by various provisions of the Civil Code; 10 however, an
agreement of the partners, like any other contract, is binding among
In its decision, dated 17 January 1990, the SEC held: WHEREFORE,
them and normally takes precedence to the extent applicable over the
premises considered the appealed order of 31 March 1989 is hereby
Code's general provisions. We here take note of paragraph 8 of the
REVERSED insofar as it concludes that the partnership of Bito, Misa &
"Amendment to Articles of Partnership" reading thusly:
Lozada has not been dissolved.

. . . In the event of the death or retirement of any partner,

The Court of Appeals, finding no reversible error on the part of
his interest in the partnership shall be liquidated and paid
respondent Commission, AFFIRMED in toto the SEC decision and
in accordance with the existing agreements and his
order appealed from. In fine, the appellate court held, per its decision
partnership participation shall revert to the Senior Partners
of 26 February 1993, (a) that Atty. Misa's withdrawal from the
for allocation as the Senior Partners may
partnership had changed the relation of the parties and inevitably
determine; provided, however, that with respect to the two
caused the dissolution of the partnership
(2) floors of office condominium which the partnership is
now acquiring, consisting of the 5th and the 6th floors of
ISSUE:
the Alpap Building, 140 Alfaro Street, Salcedo Village,
Makati, Metro Manila, their true value at the time of such
1. Whether or not the partnership of Bito, Misa & Lozada death or retirement shall be determined by two (2)
(now Bito, Lozada, Ortega & Castillo) is a partnership at independent appraisers, one to be appointed (by the
will. partnership and the other by the) retiring partner or the
heirs of a deceased partner, as the case may be. In the
2. Whether or not the withdrawal of private respondent event of any disagreement between the said appraisers a
dissolved the partnership regardless of his good or bad third appraiser will be appointed by them whose decision
faith. shall be final. The share of the retiring or deceased partner
in the aforementioned two (2) floor office condominium
shall be determined upon the basis of the valuation above
HELD: mentioned which shall be paid monthly within the first ten
(10) days of every month in installments of not less than
1. Yes. P20,000.00 for the Senior Partners, P10,000.00 in the case
of two (2) existing Junior Partners and P5,000.00 in the
A partnership that does not fix its term is a partnership at will. That case of the new Junior Partner. 11
the law firm "Bito, Misa & Lozada," and now "Bito, Lozada, Ortega and
Castillo," is indeed such a partnership need not be unduly belabored. The term "retirement" must have been used in the articles, as we so
We quote, with approval, like did the appellate court, the findings and hold, in a generic sense to mean the dissociation by a partner,
disquisition of respondent SEC on this matter; viz: inclusive of resignation or withdrawal, from the partnership that
thereby dissolves it.
The partnership agreement (amended articles of 19 August
1948) does not provide for a specified period or On the third and final issue, we accord due respect to the appellate
undertaking. The "DURATION" clause simply states: court and respondent Commission on their common factual
finding, i.e., that Attorney Misa did not act in bad faith. Public
"5. DURATION. The partnership shall continue so respondents viewed his withdrawal to have been spurred by
long as mutually satisfactory and upon the death "interpersonal conflict" among the partners. It would not be right, we
or legal incapacity of one of the partners, shall be agree, to let any of the partners remain in the partnership under such
continued by the surviving partners." an atmosphere of animosity; certainly, not against their
will. 12 Indeed, for as long as the reason for withdrawal of a partner
is not contrary to the dictates of justice and fairness, nor for the
The birth and life of a partnership at will is predicated on the mutual purpose of unduly visiting harm and damage upon the
desire and consent of the partners. The right to choose with whom a partnership, bad faith cannot be said to characterize the act. Bad
person wishes to associate himself is the very foundation and essence faith, in the context here used, is no different from its normal concept
of that partnership. Its continued existence is, in turn, dependent on of a conscious and intentional design to do a wrongful act for a
the constancy of that mutual resolve, along with each partner's dishonest purpose or moral obliquity.
capability to give it, and the absence of a cause for dissolution
provided by the law itself. Verily, any one of the partners may, at his
Tocao vs. Court of Appeals
sole pleasure, dictate a dissolution of the partnership at will. He must,
342 SCRA 20
however, act in good faith, not that the attendance of bad faith can
prevent the dissolution of the partnership4 but that it can result in a
liability for damages.5 FACTS: On November 14, 2001, petitioners Marjorie Tocao and
William T. Belo filed a Motion for Reconsideration of SC Decision dated
October 4, 2000. They maintain that there was no partnership
In passing, neither would the presence of a period for its specific between petitioner Belo, on the one hand, and respondent Nenita A.
duration or the statement of a particular purpose for its creation Anay, on the other hand; and that the latter being merely an
prevent the dissolution of any partnership by an act or will of a employee of petitioner Tocao.
partner.6 Among partners,7 mutual agency arises and the doctrine
of delectus personae allows them to have the power, although not
necessarily the right, to dissolve the partnership. An unjustified ISSUE: Whether there is partnership between Belo and Anay.
dissolution by the partner can subject him to a possible action for
damages. HELD: No.
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
34
After a careful review of the evidence presented, we are convinced her act of withholding whatever stocks were in her possession and
that, indeed, petitioner Belo acted merely as guarantor of Geminesse control was justified, if only to serve as security for her claims against
Enterprise. This was categorically affirmed by respondent's own the partnership. However, while we do not agree that the same
witness, Elizabeth Bantilan, during her cross-examination. renders private respondent in bad faith and should bar her claim for
Furthermore, Bantilan testified that it was Peter Lo who was the damages, we find that the said sum of P208,250.00 should be
company's financier. Thus: deducted from whatever amount is finally adjudged in her favor on
the basis of the formal account of the partnership affairs to be
submitted to the Regional Trial Court.
Q - You mentioned a while ago the name William
Belo. Now, what is the role of William Belo with
Geminesse Enterprise?
Bearneza vs. Dequilla
43 Phil 237
A - William Belo is the friend of Marjorie Tocao and G.R. No. 17024, March 24, 1922
he was the guarantor of the company.
FACTS: In the year 1903, Balbino Dequilla, the herein defendant, and
Q - What do you mean by guarantor? Perpetua Bearneza formed a partnership for the purpose of
exploiting a fish pond, Perpetua obligating herself to contribute to
the payment of the expenses of the business, which obligation she
A - He guarantees the stocks that she owes made good, and both agreeing to divide the profits between
somebody who is Peter Lo and he acts as guarantor for themselves, which they had been doing until the death of the said
us. We can borrow money from him. Perpetua in the year 1912.

Q - You mentioned a certain Peter Lo. Who is this

The deceased left a will in one of the clauses of which she appointed
Peter Lo? Domingo Bearnez, the herein plaintiff, as her heir to succeed to all her
rights and interests in the fish pond in question.
A - Peter Lo is based in Singapore.
Demand having been made upon Balbino Dequilla by Domingo
Q - What is the role of Peter Lo in the Geminesse Bearneza for the delivery of the part of the fish pond belonging to his
Enterprise? decedent, Perpetua, and delivery having been refused, Domingo
Bearneza brought this action to recover said part of the fish pond
belonging to his decedent, Perpetua, and delivery having been
A - He is the one fixing our orders that open the L/C.
refused, Domingo Bearneza brought this action recover said
part of the fish pond and one-half of the profits received by
Q - You mean Peter Lo is the financier? the defendant from the fish pond from the year 1913 to 1919.

A - Yes, he is the financier. In his answer, the defendant denies generally and specifically the
allegations of the complaint, and alleges, as special defense, that "the
Q - And the defendant William Belo is merely the formation of the supposed partnership between the plaintiff and the
guarantor of Geminesse Enterprise, am I correct? defendant for the exploitation of the aforesaid fish pond was not
carried into effect, on account of the plaintiff having refused
to defray the expenses of reconstruction and exploitation of
A - Yes, sir said fish pond."

The foregoing was neither refuted nor contradicted by respondent's The court below rendered judgment, declaring the plaintiff owner of
evidence. It should be recalled that the business relationship created one-half of the fish pond, which was composed of the portions known
between petitioner Tocao and respondent Anay was an informal as "Alimango" and "Dalusan. From this judgment the defendant
partnership, which was not even recorded with the Securities and appeals, making various assignments of error.
Exchange Commission. As such, it was understandable that Belo,
who was after all petitioner Tocao's good friend and confidante,
would occasionally participate in the affairs of the business, although ISSUE: Whether or not the partnership was dissolved upon the death
never in a formal or official capacity.3 Again, respondent's witness, of Perpetua.
Elizabeth Bantilan, confirmed that petitioner Belo's presence in
Geminesse Enterprise's meetings was merely as guarantor of the HELD: Yes.
company and to help petitioner Tocao.
The partnership formed by Perpetua Bearneza and Balbino Dequilla,
Furthermore, no evidence was presented to show that petitioner as to the existence of which the proof contained in the record is
Belo participated in the profits of the business enterprise. conclusive and there is no dispute, was of a civil nature. It was a
Respondent herself professed lack of knowledge that petitioner Belo particular partnership, as defined in article 1678 of the Civil Code, it
received any share in the net income of the partnership.5 On the having had for its subject-matter a specified thing, to with,
other hand, petitioner Tocao declared that petitioner Belo was not the exploitation of the aforementioned fish pond. Although, as
entitled to any share in the profits of Geminesse Enterprise.6 With no the trial court says in its decision, the defendant, in his letters to
participation in the profits, petitioner Belo cannot be deemed a Perpetua or her husband, makes reference to the fish pond, calling it
partner since the essence of a partnership is that the partners share "our," or "your fish pond," this reference cannot be held to include the
in the profits and losses.7 land on which the said fish pond was built. It has not been proven
that Perpetua Bearneza participated in the ownership of said land, and
Exhibits 2 and 3 of the defendant show that he has been paying, as
Consequently, inasmuch as petitioner Belo was not a partner in exclusive owner of the fish pond, the land tax thereon, although in
Geminesse Enterprise, respondent had no cause of action against him Exhibit X he says that the said land belongs to the State. The
and her complaint against him should accordingly be dismissed. conclusion, therefore, from the evidence is that the land on which the
fish pond was constructed did not constitute a part of the subject-
As regards the award of damages, petitioners argue that respondent matter of the aforesaid partnership.
should be deemed in bad faith for failing to account for stocks of
Geminesse Enterprise amounting to P208,250.00 and that,
accordingly, her claim for damages should be barred to that extent. Now, this partnership not having been organized in the form of a
We do not agree. Given the circumstances surrounding private mercantile partnership, and, therefore, the provisions of the Code of
respondent's sudden ouster from the partnership by petitioner Tocao, Commerce not being applicable thereto (article 1670 of the Civil
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
35
Code), it was dissolved by the death of Perpetua Bearneza, and falls Two weeks after March 17, 1957, Rojas told Maglana that he will not
under the provisions of article 1700, subsection 3, of the same Code, be able to comply with the promised contributions and he will not
and not under the exception established in the last paragraph of said work as logging superintendent.
article 1700 of the Civil Code.
Meanwhile, Rojas took funds from the partnership more than his
contribution. Thus, in a letter dated February 21, 1961 (Exhibit "10")
Neither can it be maintained that the partnership continued to exist Maglana notified Rojas that he dissolved the partnership
after the death of Perpetua, inasmuch as it does not appear that any (R.A. 949).
stipulation to that effect has ever been made by her and the
defendant, pursuant to the provisions of article 1704 of the Code last On April 7, 1961, Rojas filed an action before the Court of First
cited. Instance of Davao against Maglana for the recovery of properties,
accounting, receivership and damages, docketed as Civil Case No.
3518 (Record on Appeal, pp. 1-26).
The partnership having been dissolved by the death of Perpetua
Bearneza, its subsequent legal status was that of a partnership in After trial, the lower court rendered its decision on March 11, 1968,
liquidation, and the only rights inherited by her testamentary heir, the the dispositive portion of which reads as follows:
herein plaintiff, were those resulting from the said liquidation in favor
of the deceased partner, and nothing more. Before this liquidation is "1. The nature of the partnership and the legal relations of
made, which up to the present has not been effected, it is impossible Maglana and Rojas after Pahamotang retired from the
to determine what rights or interests, if any, the deceased had, the second partnership, that is, after August 31, 1957, when
partnership bond having been dissolved. Pahamotang was finally paid his share — the partnership
of the defendant and the plaintiff is one of a de facto
and at will;
Rojas vs. Maglana
G.R. No. 30616, December 10, 1990 Rojas interposed the instant appeal.

FACTS: On January 14, 1955, Maglana and Rojas executed their ISSUE:
Articles of Co-Partnership (Exhibit "A") called Eastcoast Development
Enterprises (EDE) with only the two of them as partners. The 1) What is the nature of the partnership and legal relationship
partnership EDE with an indefinite term of existence was duly of the Maglana-Rojas after Pahamotang retired from the
registered on January 21, 1955 with the Securities and Exchange second partnership?
Commission..
2) May Maglana dissolve the partnership?
Under the said Articles of Co-Partnership, appellee Maglana shall
manage the business affairs of the partnership, including marketing
HELD:
and handling of cash and is authorized to sign all papers and
instruments relating to the partnership, while appellant Rojas shall be
1) The second partnership is the same as the first partnership
the logging superintendent and shall manage the logging operations
prior to Pahamontang.
of the partnership.
Because of the difficulties encountered, Rojas and Maglana decided After a careful study of the records as against the conflicting claims
to avail of the services of Pahamotang as industrial partner. of Rojas and Maglana, it appears evident that it was not the intention
of the partners to dissolve the first partnership, upon the constitution
On March 4, 1956, Maglana, Rojas and Agustin Pahamotang executed of the second one, which they unmistakably called an "Additional
their Articles of Co-Partnership (Exhibit "B" and Exhibit "C") under the Agreement"
firm name EASTCOAST DEVELOPMENT ENTERPRISES (EDE). Aside
from the slight difference in the purpose of the second partnership
which is to hold and secure renewal of timber license instead of to The lower court is of the view that the second partnership superseded
secure the license as in the first partnership and the term of the the first, so that when the second partnership was dissolved there
second partnership is fixed to thirty (30) years, everything else is the was no written contract of co-partnership; there was no reconstitution
same. as provided for in the Maglana, Rojas and Pahamotang partnership
contract. Hence, the partnership which was carried on by Rojas and
On October 25, 1956, Pahamotang, Maglana and Rojas executed a Maglana after the dissolution of the second partnership was a de facto
document entitled "CONDITIONAL SALE OF INTEREST IN THE partnership and at will. It was considered as a partnership at will
PARTNERSHIP, EASTCOAST DEVELOPMENT ENTERPRISE" (Exhibits because there was no term, express or implied; no period was fixed,
"C" and "D") agreeing among themselves that Maglana and Rojas expressly or impliedly (Decision, R.A. pp. 962-963).
shall purchase the interest, share and participation in the Partnership
of Pahamotang assessed in the amount of P31,501.12. It was also On the other hand, Rojas insists that the registered partnership under
agreed in the said instrument that after payment of the sum of the firm name of Eastcoast Development Enterprises (EDE) evidenced
P31,501.12 to Pahamotang including the amount of loan secured by by the Articles of Co-Partnership dated January 14, 1955 (Exhibit "A")
Pahamotang in favor of the partnership, the two (Maglana and Rojas) has not been novated, superseded and/or dissolved by the
shall become the owners of all equipment contributed by Pahamotang unregistered articles of co-partnership among appellant Rojas,
and the EASTCOAST DEVELOPMENT ENTERPRISES, the name also appellee Maglana and Agustin Pahamotang, dated March 4, 1956
given to the second partnership, be dissolved. (Exhibit "C") and accordingly, the terms and stipulations of said
registered Articles of Co-Partnership (Exhibit "A") should govern the
After the withdrawal of Pahamotang, the partnership was continued relations between him and Maglana. Upon withdrawal of Agustin
by Maglana and Rojas without the benefit of any written Pahamotang from the unregistered partnership (Exhibit "C"), the
agreement or reconstitution of their written Articles of legally constituted partnership EDE (Exhibit "A") continues to govern
Partnership (Decision, R.A. 948). the relations between them and it was legal error to consider a de
On January 28, 1957, Rojas left and abandoned the partnership facto partnership between said two partners or a partnership at will.
Hence, the letter of appellee Maglana dated February 23, 1961, did
(Decision, R.A. 947).
not legally dissolve the registered partnership between them, being in
On February 4, 1957, Rojas withdrew his equipment from the contravention of the partnership agreement agreed upon and
partnership for use in the newly acquired area (Decision, R.A. stipulated in their Articles of Co-Partnership (Exhibit "A"). Rather,
948).The equipment withdrawn were his supposed contributions to appellant is entitled to the rights enumerated in Article 1837 of the
the first partnership Civil Code and to the sharing profits between them of "share and
share alike" as stipulated in the registered Articles of Co-Partnership
On March 17, 1957, Maglana wrote Rojas reminding the latter of his (Exhibit "A").
obligation to contribute, either in cash or in equipment, to the capital
investments of the partnership as well as his obligation to perform his After a careful study of the records as against the conflicting claims
duties as logging superintendent. of Rojas and Maglana, it appears evident that it was not the intention
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
36
of the partners to dissolve the first partnership, upon the constitution FACTS: This case originated from a complaint filed by respondent
of the second one, which they unmistakably called an "Additional Leung Yiu with the then Court of First Instance of Manila, Branch II
Agreement" (Exhibit "9-B") (Brief for Defendant-Appellee, pp. to recover the sum equivalent to twenty-two percent (22%) of the
24-25). Except for the fact that they took in one industrial partner; annual profits derived from the operation of Sun Wah Panciteria since
gave him an equal share in the profits and fixed the term of the second October, 1955 from petitioner Dan Fue Leung.
partnership to thirty (30) years, everything else was the same. Thus,
they adopted the same name, EASTCOAST DEVELOPMENT
The Sun Wah Panciteria, a restaurant, located at Florentino Torres
ENTERPRISES, they pursued the same purposes and the capital
Street, Sta. Cruz, Manila, was established sometime in October, 1955.
contributions of Rojas and Maglana as stipulated in both partnerships
It was registered as a single proprietorship and its licenses and
call for the same amounts. Just as important is the fact that all
permits were issued to and in favor of petitioner Dan Fue Leung as
subsequent renewals of Timber License No. 35-36 were secured in
the sole proprietor. Respondent Leung Yiu adduced evidence during
favor of the First Partnership, the original licensee. To all intents and
the trial of the case to show that Sun Wah Panciteria was actually a
purposes therefore, the First Articles of Partnership were only
partnership and that he was one of the partners having contributed
amended, in the form of Supplementary Articles of Co-Partnership
P4,000.00 to its initial establishment.
(Exhibit "C") which was never registered (Brief for Plaintiff-Appellant,
p. 5). Otherwise stated, even during the existence of the second
partnership, all business transactions were carried out under the duly The private respondents evidence is summarized as follows:
registered articles. As found by the trial court, it is an admitted fact
that even up to now, there are still subsisting obligations and About the time the Sun Wah Panciteria started to become operational,
contracts of the latter (Decision, R.A. pp. 950-957). No rights and the private respondent gave P4,000.00 as his contribution to the
obligations accrued in the name of the second partnership except in partnership. This is evidenced by a receipt identified as Exhibit "A"
favor of Pahamotang which was fully paid by the duly registered wherein the petitioner acknowledged his acceptance of the P4,000.00
partnership (Decision, R.A., pp. 919-921). by affixing his signature thereto. Furthermore, the private respondent
On the other hand, there is no dispute that the second partnership received from the petitioner the amount of P12,000.00 covered by the
was dissolved by common consent. Said dissolution did not affect the latter's Equitable Banking Corporation Check No. 13389470-B from
first partnership which continued to exist. Significantly, Maglana and the profits of the operation of the restaurant for the year 1974.
Rojas agreed to purchase the interest, share and participation in the
second partnership of Pahamotang and that thereafter, the two The petitioner denied having received from the private respondent the
(Maglana and Rojas) became the owners of equipment contributed by amount of P4,000.00. To bolster his contention that he was the sole
Pahamotang. Even more convincing, is the fact that Maglana on March owner of the restaurant, the petitioner presented various government
17, 1957, wrote Rojas, reminding the latter of his obligation to licenses and permits showing the Sun Wah Panciteria was and still is
contribute either in cash or in equipment, to the capital a single proprietorship solely owned and operated by himself alone.
investment of the partnership as well as his obligation to Fue Leung also flatly denied having issued to the private respondent
perform his duties as logging superintendent. This reminder the receipt (Exhibit G) and the Equitable Banking Corporation's Check
cannot refer to any other but to the provisions of the duly registered No. 13389470 B in the amount of P12,000.00 (Exhibit B).
Articles of Co-Partnership. As earlier stated, Rojas replied that he will
not be able to comply with the promised contributions and he will not
work as logging superintendent. By such statements, it is obvious that The petitioner raises the issue of prescription. He argues: The Hon.
Roxas understood what Maglana was referring to and left no room for Respondent Intermediate Appellate Court gravely erred in not
doubt that both considered themselves governed by the articles of the resolving the issue of prescription in favor of petitioner. The alleged
duly registered partnership. receipt is dated October 1, 1955 and the complaint was filed only on
July 13, 1978 or after the lapse of twenty-two (22) years, nine (9)
Under the circumstances, the relationship of Rojas and Maglana after months and twelve (12) days. From October 1, 1955 to July 13,
the withdrawal of Pahamotang can neither be considered as a De 1978, no written demands were ever made by private respondent. It
Facto Partnership, nor a Partnership at Will, for as stressed, there is was argued that the non-assertion of rights at any time within 10
an existing partnership, duly registered. years results to the loss of the right.

2) Yes.

As to the question of whether or not Maglana can unilaterally dissolve Affirmed by the appellate court, the trial court rendered a favorable
the partnership in the case at bar, the answer is in the affirmative. judgment in favor of complainant (private respondent).
Hence, as there are only two parties when Maglana notified Rojas that
he dissolved the partnership, it is in effect a notice of withdrawal. ISSUE: Whether or not the 10 year prescription applies with respect
to the right of respondent to assert its rights during the existence of
Under Article 1830, par. 2 of the Civil Code, even if there is a specified partnership.
term, one partner can cause its dissolution by expressly withdrawing
even before the expiration of the period, with or without justifiable HELD: No.
cause. Of course, if the cause is not justified or no cause was given,
the withdrawing partner is liable for damages but in no case can he
The private respondent is a partner of the petitioner in Sun Wah
be compelled to remain in the firm. With his withdrawal, the number
Panciteria. The requisites of a partnership which are — 1) two or more
of members is decreased, hence, the dissolution. And in whatever way
persons bind themselves to contribute money, property, or industry
he may view the situation, the conclusion is inevitable that Rojas and
to a common fund; and 2) intention on the part of the partners to
Maglana shall be guided in the liquidation of the partnership by the
divide the profits among themselves (Article 1767, Civil Code; Yulo v.
provisions of its duly registered Articles of Co-Partnership; that is, all
Yang Chiao Cheng, 106 Phil. 110)-have been established. As stated
profits and losses of the partnership shall be divided "share and share
by the respondent, a partner shares not only in profits but also in the
alike" between the partners.
losses of the firm. If excellent relations exist among the partners at
the start of business and all the partners are more interested in seeing
Article 1842 the firm grow rather than get immediate returns, a deferment of
sharing in the profits is perfectly plausible. It would be incorrect to
state that if a partner does not assert his rights anytime within ten
Leung vs. Intermediate Appellate Court years from the start of operations, such rights are irretrievably lost.
169 SCRA 746 The private respondent's cause of action is premised upon the failure
G.R. No. 70926, January 31, 1989 of the petitioner to give him the agreed profits in the operation of Sun
Wah Panciteria. In effect the private respondent was asking for an
accounting of his interests in the partnership.
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
37
It is Article 1842 of the Civil Code in conjunction with Articles 1144 up partners or the surviving partners or the person or
and 1155 which is applicable. Article 1842 states: partnership continuing the business, at the date of
dissolution, in the absence of any agreement to the
contrary.
The right to an account of his interest shall
accrue to any partner, or his legal representative
as against the winding up partners or the Applied in relation to Articles 1807 and 1809, which also deal with the
surviving partners or the person or partnership duty to account, the above-cited provision states that the right to
continuing the business, at the date of demand an accounting accrues at the date of dissolution in the
dissolution, in the absence or any agreement to absence of any agreement to the contrary. When a final accounting is
the contrary. made, it is only then that prescription begins to run. In the case at
bar, no final accounting has been made, and that is precisely what
respondents are seeking in their action before the trial court, since
Regarding the prescriptive period within which the private respondent
petitioner has failed or refused to render an accounting of the
may demand an accounting, Articles 1806, 1807, and 1809 show that
partnership's business and assets. Hence, the said action is not barred
the right to demand an accounting exists as long as the partnership
by prescription.
exists. Prescription begins to run only upon the dissolution of the
partnership when the final accounting is done.
CASES on JOINT VENTURE
Emance vs. Court of Appeals
370 SCRA 431 (2001)
G.R. No. 126334, November 23, 2001 Litonjua vs. Litonjua
477 SCRA 576
G.R. NOS. 166299-300, December 13, 2005
FACTS: Petitioner Emilio Emnace, Vicente Tabanao and Jacinto
Divinagracia were partners in a business concern known as Ma. Nelma
Fishing Industry. Sometime in January of 1986, they decided to FACTS: Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein
dissolve their partnership and executed an agreement of partition and respondent Eduardo K. Litonjua, Sr. (Eduardo) are brothers. The legal
distribution of the partnership properties among them. dispute between them started when, on December 4, 2002, in the
Regional Trial Court (RTC) at Pasig City, Aurelio filed a suit against his
brother Eduardo and herein respondent Robert T. Yang (Yang) and
Throughout the existence of the partnership, and even after Vicente several corporations for specific performance and accounting.
Tabanao's untimely demise in 1994, petitioner failed to submit to
Tabanao's heirs any statement of assets and liabilities of the A further examination of the allegations in the complaint would show
partnership, and to render an accounting of the partnership's that [petitioner’s] contribution to the so-called "partnership/joint
finances. Petitioner also reneged on his promise to turn over to venture" was his supposed share in the family business that is
Tabanao's heirs the deceased's 1/3 share in the total assets of the consisting of movie theaters, shipping and land development under
partnership, amounting to P30,000,000.00, or the sum of paragraph 3.02 of the complaint. In other words, his contribution as
P10,000,000.00, despite formal demand for payment thereof.2 a partner in the alleged partnership/joint venture consisted of
immovable properties and real rights..
Consequently, Tabanao' s heirs, respondents herein, filed against
petitioner an action for accounting, payment of shares, division of Significantly enough, petitioner matter-of-factly concurred with the
assets and damages. appellate court’s observation that, prescinding from what he himself
alleged in his basic complaint, his contribution to the partnership
Petitioner filed a motion to dismiss the complaint on the grounds consisted of his share in the Litonjua family businesses which owned
among others: the complaint should be dismissed on the ground of variable immovable properties. Petitioner’s assertion in his motion
prescription, arguing that respondents' action prescribed four (4) for reconsideration24 of the CA’s decision, that "what was to be
years after it accrued in 1986. contributed to the business [of the partnership] was [petitioner’s]
industry and his share in the family [theatre and land development]
business" leaves no room for speculation as to what petitioner
The trial court and the Court of Appeals gave scant consideration to contributed to the perceived partnership.
petitioner's hollow arguments.

The trial court granted the prayer in the complaint but was later
ISSUE: Whether or not the action for accounting has prescribed in 4 reversed by the Court of Appeals.
years from 1986 dissolution.

HELD: No. Explaining its case disposition, the appellate court stated, inter
alia, that the alleged partnership, as evidenced by the actionable
documents, Annex "A" and "A-1" attached to the complaint,
The three (3) final stages of a partnership are: (1) dissolution; (2) and upon which petitioner solely predicates his right/s allegedly
winding-up; and (3) termination.36 The partnership, although violated by Eduardo, Yang and the corporate defendants a quo is
dissolved, continues to exist and its legal personality is retained, at "void or legally inexistent".
which time it completes the winding up of its affairs, including the
partitioning and distribution of the net partnership assets to the
partners.37 For as long as the partnership exists, any of the ISSUE: Whether or not there was no partnership/joint venture
partners may demand an accounting of the partnership's created by the actionable document because the latter was not a
business. Prescription of the said right starts to run only public instrument and immovable properties were contributed to the
upon the dissolution of the partnership when the final partnership pursuant to Article 1773.
accounting is done.38

HELD: There was no partnership/joint venture.

Contrary to petitioner's protestations that respondents' right to
inquire into the business affairs of the partnership accrued in 1986, A partnership exists when two or more persons agree to place their
prescribing four (4) years thereafter, prescription had not even money, effects, labor, and skill in lawful commerce or business, with
begun to run in the absence of a final accounting. Article 1842 of the the understanding that there shall be a proportionate sharing of the
Civil Code provides: profits and losses between them.20 A contract of partnership is defined
by the Civil Code as one where two or more persons bound
The right to an account of his interest shall accrue to any themselves to contribute money, property, or industry to a common
partner, or his legal representative as against the winding fund with the intention of dividing the profits among themselves.21 A
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
38
joint venture, on the other hand, is hardly distinguishable from, and Considering thus the value and nature of petitioner’s alleged
may be likened to, a partnership since their elements are similar, i.e., contribution to the purported partnership, the Court, even if so
community of interests in the business and sharing of profits and disposed, cannot plausibly extend Annex "A-1" the legal effects that
losses. Being a form of partnership, a joint venture is generally petitioner so desires and pleads to be given. Annex "A-1", in fine,
governed by the law on partnership.22 cannot support the existence of the partnership sued upon and sought
to be enforced. The legal and factual milieu of the case calls for this
disposition. A partnership may be constituted in any form, save when
The underlying issue that necessarily comes to mind in this
immovable property or real rights are contributed thereto or when the
proceedings is whether or not petitioner and respondent Eduardo are
partnership has a capital of at least ₱3,000.00, in which case a public
partners in the theatre, shipping and realty business, as one claims
instrument shall be necessary.25 And if only to stress what has
but which the other denies. And the issue bearing on the first assigned
repeatedly been articulated, an inventory to be signed by the parties
error relates to the question of what legal provision is applicable under
and attached to the public instrument is also indispensable to the
the premises, petitioner seeking, as it were, to enforce the actionable
validity of the partnership whenever immovable property is
document - Annex "A-1" - which he depicts in his complaint to be the
contributed to it.
contract of partnership/joint venture between himself and Eduardo.
Clearly, then, a look at the legal provisions determinative of the
existence, or defining the formal requisites, of a partnership is Given the foregoing perspective, what the appellate court wrote in its
indicated. Foremost of these are the following provisions of the Civil assailed Decision26 about the probative value and legal effect of
Code: Annex "A-1" commends itself for concurrence:

Art. 1771. A partnership may be constituted in any form, except where Considering that the allegations in the complaint showed that
immovable property or real rights are contributed thereto, in which [petitioner] contributed immovable properties to the alleged
case a public instrument shall be necessary. partnership, the "Memorandum" (Annex "A" of the complaint) which
purports to establish the said "partnership/joint venture" is NOT a
public instrument and there was NO inventory of the immovable
Art. 1772. Every contract of partnership having a capital of three
property duly signed by the parties. As such, the said
thousand pesos or more, in money or property, shall appear in a public
"Memorandum" … is null and void for purposes of
instrument, which must be recorded in the Office of the Securities and
establishing the existence of a valid contract of partnership.
Exchange Commission.
Indeed, because of the failure to comply with the essential formalities
of a valid contract, the purported "partnership/joint venture" is legally
Failure to comply with the requirement of the preceding paragraph inexistent and it produces no effect whatsoever. Necessarily, a void
shall not affect the liability of the partnership and the members or legally inexistent contract cannot be the source of any contractual
thereof to third persons. or legal right. Accordingly, the allegations in the complaint, including
the actionable document attached thereto, clearly demonstrates that
Art. 1773. A contract of partnership is void, whenever immovable [petitioner] has NO valid contractual or legal right which could be
property is contributed thereto, if an inventory of said property is not violated by the [individual respondents] herein. As a consequence,
made, signed by the parties, and attached to the public instrument. [petitioner’s] complaint does NOT state a valid cause of action
because NOT all the essential elements of a cause of action are
present. (Underscoring and words in bracket added.)
Annex "A-1", on its face, contains typewritten entries, personal in
tone, but is unsigned and undated. As an unsigned document,
there can be no quibbling that Annex "A-1" does not meet the public Marsman Drysdale vs. Philippine Geoanalytics, Inc.
instrumentation requirements exacted under Article 1771 of the Civil 622 SCRA 281
Code. Moreover, being unsigned and doubtless referring to a G.R. No. 183374, June 29, 2010
partnership involving more than P3,000.00 in money or property,
Annex "A-1" cannot be presented for notarization, let alone FACTS: On February 12, 1997, Marsman Drysdale Land, Inc.
registered with the Securities and Exchange Commission (SEC), as (Marsman Drysdale) and Gotesco Properties, Inc. (Gotesco) entered
called for under the Article 1772 of the Code. And inasmuch as the into a Joint Venture Agreement (JVA) for the construction and
inventory requirement under the succeeding Article 1773 goes into development of an office building on a land owned by Marsman
the matter of validity when immovable property is contributed to the Drysdale in Makati City.1
partnership, the next logical point of inquiry turns on the nature of
petitioner’s contribution, if any, to the supposed partnership. The JVA contained the following pertinent provisions:

The CA, addressing the foregoing query, correctly stated that It is the desire of the Parties herein to implement this
petitioner’s contribution consisted of immovables and real rights. Agreement by investing in the PROJECT on a FIFTY (50%)
PERCENT- FIFTY (50%) PERCENT basis.
Lest it be overlooked, the contract-validating inventory requirement
under Article 1773 of the Civil Code applies as long real property or 4.1. Contribution of [Marsman Drysdale]-[Marsman Drysdale] shall
real rights are initially brought into the partnership. In short, it is really contribute the Property.
of no moment which of the partners, or, in this case, who between
petitioner and his brother Eduardo, contributed immovables. In
context, the more important consideration is that real property was The total appraised value of the Property is PESOS: FOUR HUNDRED
contributed, in which case an inventory of the contributed property TWENTY MILLION (P420,000,000.00).
duly signed by the parties should be attached to the public instrument,
else there is legally no partnership to speak of. 4.2. Contribution of [Gotesco]- [Gotesco] shall contribute the
amount of PESOS: FOUR HUNDRED TWENTY MILLION
Petitioner, in an obvious bid to evade the application of Article 1773, (P420,000,000.00) in cash which shall be payable as follows:
argues that the immovables in question were not contributed, but
were acquired after the formation of the supposed partnership. 4.2.1. The amount of PESOS: FIFTY MILLION (P50,000,000.00)
Needless to stress, the Court cannot accord cogency to this specious upon signing of this Agreement.
argument. For, as earlier stated, petitioner himself admitted
contributing his share in the supposed shipping, movie theatres and
realty development family businesses which already owned 4.3.3 [Marsman Drysdale] shall not be obligated to fund the
immovables even before Annex "A-1" was allegedly executed. Project as its contribution is limited to the Property.
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
39
Via Technical Services Contract (TSC) dated July 14, 1997,2 the joint A joint venture being a form of partnership, it is to be governed by
venture engaged the services of Philippine Geoanalytics, Inc. (PGI) the laws on partnership.20 Article 1797 of the Civil Code provides:
to provide subsurface soil exploration, laboratory testing, seismic
study and geotechnical engineering for the project. PGI then billed
Art. 1797. The losses and profits shall be distributed in conformity
the joint venture for the cost of partial subsurface soil and
with the agreement. If only the share of each partner in
representing the cost of the completed seismic study. Despite
the profits has been agreed upon, the share of each in the losses shall
repeated demands from PGI,5 the joint venture failed to pay its
be in the same proportion.
obligations.

In the absence of stipulation, the share of each in the profits and

PGI subsequently filed on November 11, 1999 a complaint for
losses shall be in proportion to what he may have contributed, but the
collection of sum of money and damages at the Regional Trial Court
industrial partner shall not be liable for the losses. As for the profits,
(RTC) of Quezon City against Marsman Drysdale and Gotesco.
the industrial partner shall receive such share as may be just and
equitable under the circumstances. If besides his services he has
In its Answer with Counterclaim and Cross-claim, Marsman Drysdale contributed capital, he shall also receive a share in the profits in
passed the responsibility of paying PGI to Gotesco which, under the proportion to his capital. (emphasis and underscoring supplied)
JVA, was solely liable for the monetary expenses of the project. In
other words, Petitioner asserts its liability is limited only to the
In the JVA, Marsman Drysdale and Gotesco agreed on a 50-50 ratio
property it brought to the joint venture, the rest shall be chargeable
on the proceeds of the project.21 They did not provide for the splitting
to Gotesco.
of losses, however. Applying the above-quoted provision of Article
1797 then, the same ratio applies in splitting the ₱535,353.50
ISSUE: Which between joint venturers Marsman Drysdale and obligation-loss of the joint venture.
Gotesco bears the liability to pay PGI its unpaid claims?
The appellate court’s decision must be modified, however. Marsman
HELD: Both joint venturers bear the liability to pay PGI.
Drysdale and Gotesco being jointly liable, there is no need for Gotesco
to reimburse Marsman Drysdale for "50% of the aggregate sum due"
To Marsman Drysdale, it is Gotesco since, under the JVA, construction
to PGI.
funding for the project was to be obtained from Gotesco’s cash
contribution, as its (Marsman Drysdale’s) participation in the venture
was limited to the land. Allowing Marsman Drysdale to recover from Gotesco what it paid to
PGI would not only be contrary to the law on partnership on division
Gotesco maintains, however, that it has no liability to pay PGI since it of losses but would partake of a clear case of unjust enrichment at
was due to the fault of Marsman Drysdale that PGI was unable to Gotesco’s expense. The grant by the lower courts of Marsman
complete its undertaking. Drysdale cross-claim against Gotesco was thus erroneous.

The Court finds Marsman Drysdale and Gotesco jointly liable to PGI. Tiosejo Investment Corp. vs. Ang
630 SCRA 334
PGI executed a technical service contract with the joint venture and G.R. No. 174149, September 8, 2010
was never a party to the JVA. While the JVA clearly spelled out, inter
alia, the capital contributions of Marsman Drysdale (land) and Gotesco FACTS: On 28 December 1995 petitioner entered into a Joint Venture
(cash) as well as the funding and financing mechanism for the project, Agreement (JVA) with Primetown Property Group, Inc. (PPGI) for the
the same cannot be used to defeat the lawful claim of PGI against the development of a residential condominium project to be known as The
two joint venturers-partners. Meditel on the former’s 9,502 square meter property along Samat St.,
Highway Hills, Mandaluyong City. While both parties were
The TSC clearly listed the joint venturers Marsman Drysdale and allowed, at their own individual responsibility, to pre-sell the
Gotesco as the beneficial owner of the project,19 and all billing invoices units pertaining to them, 5 PPGI further undertook to use all
indicated the consortium therein as the client. proceeds from the pre-selling of its saleable units for the
completion of the Condominium Project.”

As the appellate court held, Articles 1207 and 1208 of the Civil Code,
which respectively read: On 17 June 1996, the Housing and Land Use Regulatory Board
(HLURB) issued License to Sell No. 96-06-2854 in favor of petitioner
and PPGI as project owners. 7 By virtue of said license, PPGI
Art. 1207. The concurrence of two or more creditors or of two or more executed Contract to Sell No. 0212 with Spouses Benjamin
debtors in one and the same obligation does not imply that each one and Eleanor Ang.
of the former has a right to demand, or that each one of the latter is
bound to render, entire compliance with the
prestations.1avvphi1 There is a solidary liability only when the On 21 July 1999, respondents filed against petitioner and PPGI the
obligation expressly so states, or when the law or nature of the complaint for the rescission of the aforesaid Contracts to Sell
obligation requires solidarity. docketed before the HLURB as HLURB Case No. REM 072199-
10567. Contending that they were assured by petitioner and PPGI
that the subject condominium unit and parking space would be
Art. 1208. If from the law, or the nature or the wording of the available for turn-over and occupancy in December 1998.
obligations to which the preceding article refers the contrary does not
appear, the credit or debt shall be presumed to be divided into as
many equal shares as there are creditors or debtors, the credits or Petitioner also specifically denied the material allegations of the
debts being considered distinct from one another, subject to the Rules complaint in separate answer dated 5 February 2002 12 which it
of Court governing the multiplicity of suits. (emphasis and amended on 20 May 2002. Calling attention to the fact that its
underscoring supplied), prestation under the JVA consisted in contributing the
property on which The Meditel was to be constructed,
petitioner asseverated that, by the terms of the JVA, each party was
presume that the obligation owing to PGI is joint between Marsman individually responsible for the marketing and sale of the units
Drysdale and Gotesco. pertaining to its share; that not being privy to the Contracts to
Sell executed by PPGI and respondents, it did not receive any
The only time that the JVA may be made to apply in the present portion of the payments made by the latter; and, that without
petitions is when the liability of the joint venturers to each other would any contributory fault and negligence on its part, PPGI breached its
set in. undertakings under the JVA by failing to complete the condominium
project.
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
40
Acting on the position papers and draft decisions subsequently least sixty per cent (60%) of the capital of which is owned by
submitted by the parties, 14 Housing and Land Use (HLU) Arbiter citizens of the Philippines: Provided, That a legally organized
Dunstan T. San Vicente went on to render the 30 July 2003 decision foreign-owned corporation shall be deemed a qualified person for
declaring the subject Contracts to Sell cancelled and rescinded on purposes of granting an exploration permit, financial or technical
account of the non-completion of the condominium project. On the assistance agreement or mineral processing permit.
ground that the JVA created a partnership liability on their part,
petitioner and PPGI, as co-owners of the condominium
On December 14, 2007, the POA issued a Resolution
project, were ordered to pay: (a) respondents’ claim for
disqualifying petitioners from gaining MPSAs. It held that
refund.
petitioners are not qualified applicants to engage in mining activities.

The Office of the President and Court of Appeals ruled in favor of

The Court of Appeals, on appeal, agreed with the POA. After a careful
private respondents.
review of the records, the CA found that there was doubt as to the
nationality of petitioners when it realized that petitioners had a
ISSUE: Whether or not Tiosejo is liable despite non-privity in the common major investor, MBMI, a corporation composed of 100%
contract between PGI and Spouses Ang. Canadians. Pursuant to the first sentence of paragraph 7 of
Department of Justice (DOJ) Opinion No. 020, Series of 2005,
adopting the 1967 SEC Rules which implemented the requirement of
HELD: Viewed in the light of the foregoing provision of the JVA,
the Constitution and other laws pertaining to the exploitation of
petitioner cannot avoid liability by claiming that it was not in any way
natural resources, the CA used the "grandfather rule" to determine
privy to the Contracts to Sell executed by PPGI and respondents. As
the nationality of petitioners.
correctly argued by the latter, moreover, a joint venture is considered
in this jurisdiction as a form of partnership and is, accordingly,
governed by the law of partnerships. 54 Under Article 1824 of the Civil The Court of Appeals applied the exceptions to the res inter alios acta
Code of the Philippines, all partners are solidarily liable with the rule as provided under Secs. 29 and 31, Rule 130 of the Revised
partnership for everything chargeable to the partnership, including Rules of Court.
loss or injury caused to a third person or penalties incurred due to any
wrongful act or omission of any partner acting in the ordinary course
ISSUE: Whether or not MBMI entered into joint venture with the
of the business of the partnership or with the authority of his co-
petitioners disqualifying the latter from MPSA.
partners. 55 Whether innocent or guilty, all the partners are solidarily
liable with the partnership itself.
HELD: Yes.

Narra Nickel Mining vs. Redmonth Consolidated Mines

G.R. No. 195580, April 21, 2014 Petitioners question the CA’s use of the exception of the res inter alios
acta or the "admission by co-partner or agent" rule and "admission by
FACTS: Sometime in December 2006, respondent Redmont privies" under the Rules of Court in the instant case, by pointing out
Consolidated Mines Corp. (Redmont), a domestic corporation that statements made by MBMI should not be admitted in this case
organized and existing under Philippine laws, took interest in since it is not a party to the case and that it is not a "partner" of
mining and exploring certain areas of the province of petitioners.
Palawan. After inquiring with the Department of Environment and
Natural Resources (DENR), it learned that the areas where it wanted
to undertake exploration and mining activities where already Secs. 29 and 31, Rule 130 of the Revised Rules of Court provide:
covered by Mineral Production Sharing Agreement (MPSA)
applications of petitioners Narra, Tesoro and McArthur. Sec. 29. Admission by co-partner or agent.- The act or declaration of
a partner or agent of the party within the scope of his authority and
On January 2, 2007, Redmont filed before the Panel of Arbitrators during the existence of the partnership or agency, may be given in
(POA) of the DENR three (3) separate petitions for the denial of evidence against such party after the partnership or agency is shown
petitioners’ applications for MPSA. by evidence other than such act or declaration itself. The same rule
applies to the act or declaration of a joint owner, joint debtor, or other
person jointly interested with the party.
In the petitions, Redmont alleged that at least 60% of the
capital stock of McArthur, Tesoro and Narra are owned and
controlled by MBMI Resources, Inc. (MBMI), a 100% Sec. 31. Admission by privies.- Where one derives title to property
Canadian corporation. Redmont reasoned that since MBMI is a from another, the act, declaration, or omission of the latter, while
considerable stockholder of petitioners, it was the driving force behind holding the title, in relation to the property, is evidence against the
petitioners’ filing of the MPSAs over the areas covered by applications former.
since it knows that it can only participate in mining activities through
corporations which are deemed Filipino citizens. Redmont argued that Petitioners claim that before the above-mentioned Rule can be applied
given that petitioners’ capital stocks were mostly owned by MBMI, to a case, "the partnership relation must be shown, and that proof of
they were likewise disqualified from engaging in mining activities the fact must be made by evidence other than the admission
through MPSAs, which are reserved only for Filipino citizens. itself."49 Thus, petitioners assert that the CA erred in finding that a
partnership relationship exists between them and MBMI because, in
In their Answers, petitioners averred that they were qualified persons fact, no such partnership exists.
under Section 3(aq) of Republic Act No. (RA) 7942 or the Philippine
Mining Act of 1995 which provided: Partnerships vs. joint venture agreements

Sec. 3 Definition of Terms. As used in and for purposes of this Act, Petitioners claim that the CA erred in applying Sec. 29, Rule 130 of
the following terms, whether in singular or plural, shall mean: the Rules by stating that "by entering into a joint venture, MBMI have
a joint interest" with Narra, Tesoro and McArthur. They challenged
xxxx the conclusion of the CA which pertains to the close characteristics of
"partnerships" and "joint venture agreements." Further, they asserted
that before this particular partnership can be formed, it should have
(aq) "Qualified person" means any citizen of the Philippines been formally reduced into writing since the capital involved is more
with capacity to contract, or a corporation, partnership, association, than three thousand pesos (PhP 3,000). Being that there is no
or cooperative organized or authorized for the purpose of engaging in evidence of written agreement to form a partnership between
mining, with technical and financial capability to undertake mineral petitioners and MBMI, no partnership was created.
resources development and duly registered in accordance with law at
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
41
We disagree. In 1984, spouses Guy found that their son Gilbert has been
disposing of the assets of their corporations without
authority. In order to protect the assets of Northern Islands, Simny
A partnership is defined as two or more persons who bind themselves
surrendered Stock Certificate Nos. 132 and 133 to Emilia Tabugadir,
to contribute money, property, or industry to a common fund with the
an officer of Northern Islands. The 20,160 shares covered by the two
intention of dividing the profits among themselves.50 On the other
Stock Certificates were then registered in the names of respondent
hand, joint ventures have been deemed to be "akin" to partnerships
sisters, thus enabling them to assume an active role in the
since it is difficult to distinguish between joint ventures and
management of Northern Islands.
partnerships. Thus:

On March 18, 2004, Lincoln Continental filed with the RTC,

[T]he relations of the parties to a joint venture and the nature of their
Branch 24, Manila a Complaint for Annulment of the Transfer
association are so similar and closely akin to a partnership that it is
of Shares of Stock against respondents, docketed as Civil Case No.
ordinarily held that their rights, duties, and liabilities are to be tested
04-109444. The complaint basically alleges that Lincoln
by rules which are closely analogous to and substantially the same, if
Continental owns 20,160 shares of stock of Northern Islands;
not exactly the same, as those which govern partnership. In fact, it
and that respondents, in order to oust Gilbert from the management
has been said that the trend in the law has been to blur the
of Northern Islands, falsely transferred the said shares of stock in
distinctions between a partnership and a joint venture, very little law
respondent sisters’ names.
being found applicable to one that does not apply to the other.51

The trial court held that Civil Case No. 04-109444 is a baseless and
Though some claim that partnerships and joint ventures are totally
an unwarranted suit among family members; that based on the
different animals, there are very few rules that differentiate one from
evidence, Gilbert was only entrusted to hold the disputed shares of
the other; thus, joint ventures are deemed "akin" or similar to a
stock in his name for the benefit of the other family members; and
partnership. In fact, in joint venture agreements, rules and legal
that it was only when Gilbert started to dispose of the assets of the
incidents governing partnerships are applied.52
family’s corporations without their knowledge that respondent sisters
caused the registration of the shares in their respective names.
Accordingly, culled from the incidents and records of this case, it can
be assumed that the relationships entered between and among
The Court of Appeals agreed with the trial court.
petitioners and MBMI are no simple "joint venture agreements." As a
rule, corporations are prohibited from entering into partnership
agreements; consequently, corporations enter into joint venture ISSUE: Who owns the disputed shares of stock in Northern Islands?
agreements with other corporations or partnerships for certain
transactions in order to form "pseudo partnerships." HELD: The shares of stocks are owned by the Guy sisters.

One thing is clear. It was established before the trial court,

Obviously, as the intricate web of "ventures" entered into by and
affirmed by the Court of Appeals, that Lincoln Continental
among petitioners and MBMI was executed to circumvent the legal
held the disputed shares of stock of Northern Islands merely
prohibition against corporations entering into partnerships, then the
in trust for the Guy sisters. In fact, the evidence proffered by
relationship created should be deemed as "partnerships," and the
Lincoln Continental itself supports this conclusion. It bears emphasis
laws on partnership should be applied. Thus, a joint venture
that this factual finding by the trial court was affirmed by the Court of
agreement between and among corporations may be seen as similar
Appeals, being supported by evidence, and is, therefore, final and
to partnerships since the elements of partnership are present.
conclusive upon this Court.

Considering that the relationships found between petitioners and

Article 1440 of the Civil Code provides that:
MBMI are considered to be partnerships, then the CA is justified in
applying Sec. 29, Rule 130 of the Rules by stating that "by entering
into a joint venture, MBMI have a joint interest" with Narra, Tesoro ART. 1440. A person who establishes a trust is called the trustor; one
and McArthur. in whom confidence is reposed as regards property for the benefit of
another person is known as the trustee; and the person for whose
benefit the trust has been created is referred to as the beneficiary.
Article 1440
Guy vs. Court of Appeals, et. al. In the early case of Gayondato v. Treasurer of the Philippine Islands,
G.R. No. 165849, December 10, 2007 this Court defines trust, in its technical sense, as "a right of property,
real or personal, held by one party for the benefit of another."
FACTS: The instant controversies arose from a family dispute. Gilbert Differently stated, a trust is "a fiduciary relationship with respect to
Guy is the son of Francisco and Simny Guy. Geraldine, Gladys and property, subjecting the person holding the same to the obligation of
Grace are his sisters. The family feud involves the ownership and dealing with the property for the benefit of another person."
control of 20,160 shares of stock of Northern Islands Co., Inc.
(Northern Islands) engaged in the manufacture, distribution, and Both Lincoln Continental and Gilbert claim that the latter holds legal
sales of various home appliances bearing the "3-D" trademark. title to the shares in question. But record shows that there is no
evidence to support their claim. Rather, the evidence on record
Simny and her daughters Geraldine, Gladys and Grace, as well as clearly indicates that the stock certificates representing the contested
Northern Islands and Emilia Tabugadir, have been impleaded as shares are in respondents’ possession. Significantly, there is no proof
respondents in the above-entitled cases. Northern Islands is a to support his allegation that the transfer of the shares of stock to
family-owned corporation organized in 1957 by spouses respondent sisters is fraudulent. As aptly held by the Court of Appeals,
Francisco and respondent Simny Guy. In November 1986, they fraud is never presumed but must be established by clear and
incorporated Lincoln Continental Development Corporation, Inc. convincing evidence.25 Gilbert failed to discharge this burden. We,
(Lincoln Continental) as a holding company of the 50% agree with the Court of Appeals that respondent sisters own the
shares of stock of Northern Islands in trust for their three (3) shares of stocks, Gilbert being their mere trustee. Verily, we find no
daughters, respondents Geraldine, Gladys and Grace. Sometime in reversible error in the challenged Decision of the Court of Appeals
December 1986, upon instruction of spouses Guy, Atty. Andres (Special Second Division) in CA-G.R. CV No. 85937.
Gatmaitan, president of Lincoln Continental, indorsed in blank Stock
Certificate No. 132 (covering 8,400 shares) and Stock Certificate No.
133 (covering 11,760 shares) and delivered them to Simny.
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
42
clearly not the written instrument constituting an express trust
required under Article 1443 of the Civil Code. This argument of private
respondents, is untenable. It has been held that under the law on
Article 1443 Trusts, it is not necessary that the document expressly state and
Dela Cruz vs. Court of Appeals provide for the express trust, for it may even be created orally, no
G.R. No. 76590, February 26, 1990 particular words are required for its creation (Article 1444, Civil Code).
An express trust is created by the direct and positive acts of the
FACTS: Herein petitioners are the heirs (children) of the late Maria parties, by some writing or deed or will or by words evidencing an
de la Cruz y Gutierrez, married to Mateo del Rosario Lansang, while intention to create a trust (Sotto v. Teves, 86 SCRA 154 [1978]). No
herein private respondents are the heirs of Maria de la Cruz y particular words are required for the creation of an express trust, it
Guevarra, married to Calixto Dimalanta, and Fermin de la Cruz. The being sufficient that a trust is clearly intended (Vda. de Mapa v. Court
controversy involves a 1,980 square meters portion of Lot 1488. of Appeals, 154 SCRA 294 [1987]). Hence, petitioner's action, being
one based on express trust, has not yet prescribed. Be it noted that
Article 1443 of the Civil Code which states "No express trusts
From 1921 until her death in 1951, Maria de la Cruz y Gutierrez concerning an immovable or any interest therein may be
resided in the questioned lot in the concept of an owner. She proved by parol evidence," refers merely to enforceability,
declared the lot for tax purposes in her name. Later, she entrusted not validity of a contract between the parties. Otherwise
the administration of the said lot to her niece Maria de la Cruz y stated, for purposes of validity between the parties, an
Guevarra. When cadastral proceedings were held in Porac, in express trust concerning an immovable does not have to be
Cadastral Case No. 18, on March 17, 1926, Maria de la Cruz y in writing. Thus, Article 1443 may be said to be an extension
Gutierrez filed an answer to the questioned lot. In the said filed of the Statute of Frauds. The action to compel the trustee to
answer, over the handwritten name "Maria de la Cruz y Gutierrez" is convey the property registered in his name for the benefit of the cestui
a thumbmark presumably affixed by her, Exhibit "2-C"; that in for trust does not prescribe. If at all, it is only when the trustee
paragraph 7, a person named therein as Fermin de la Cruz y Gutierrez repudiates the trust that the period of prescription may run (Enriquez
is stated to have an interest or participation on the said lot. However, v. Court of Appeals, 104 SCRA 656 [1981]).
in the space provided in paragraph 8 to be filled up with the
personal circumstances of claimant Maria de la Cruz y
Gutierrez, what appears therein is the name Maria de la Cruz, Marcos-Araneta vs. Court of Appeals
married to Calixto Dimalanta, instead of Maria de la Cruz y G.R. No. 154096, August 22, 2008
Gutierrez, Exhibit "2-A";
FACTS: Sometime in 1968 and 1972, Ambassador Roberto S.
Benedicto, now deceased, and his business associates (Benedicto
Accordingly, the trial court rendered a decision adjudicating Group) organized Far East Managers and Investors, Inc. (FEMII) and
Lot No. 1488 in favor of Maria de la Cruz, 26 years old, Universal Equity Corporation (UEC), respectively. As petitioner Irene
married to Calixto Dimalanta and Fermin de la Cruz, Single. Marcos-Araneta would later allege, both corporations were organized
Finally, Original Certificate of Title No. 16684 of the Register of Deeds pursuant to a contract or arrangement whereby Benedicto, as trustor,
of Pampanga was issued in their names. placed in his name and in the name of his associates, as trustees, the
shares of stocks of FEMII and UEC with the obligation to hold those
Petitioners file an action for reconveyance on the belief that the shares and their fruits in trust and for the benefit of Irene to the extent
property was merely entrusted to Maria dela Cruz y Guevarra. Tax of 65% of such shares. Several years after, Irene demanded the
declarations were presented to establish trust between Maria dela reconveyance of said 65% stockholdings, but the Benedicto Group
Cruz y Gutierrez and Guevarra. Private respondents argued that the refused to oblige.
document cannot be considered as constituting express trust as it is
not compliant to the requirement of Article 1443 which requires that In March 2000, Irene thereupon instituted before the RTC two similar
express trust involving immovables must be proven by written complaints for conveyance of shares of stock, accounting and
documents not merely parole evidence. And that the action already receivership against the Benedicto Group with prayer for the issuance
prescribed. of a temporary restraining order (TRO). The trial court dismissed the
complaints since the court has no jurisdiction because Irene was not
After trial, the trial court ruled in favor of the petitioners. On appeal, a resident of Batac but of Makati. Later Irene, included certain
considering the action as based on an implied trust, the then residents (new trustees) of Batac as plaintiff in her amended
Intermediate Appellate Court in its decision promulgated on June 17, complaint for the trial court to take cognizance of the complaints.
1986 (Ibid., pp. 44-53) reversed the decision of the trial court.
The trial court dismissed the complaint. On appeal under Rule 65, the
ISSUE: Whether or not petitioners' action for reconveyance was Court of Appeals also dismissed the complaint but also ruled on the
premised on express trust. merits of the trust issue.

HELD: Yes. ISSUE: Whether or not the ruling on the merits of the trust issue
which involves factual and evidentiary determination, processes not
As aptly argued by petitioners, the Court of Appeals erred when it proper in a petition for certiorari under Rule 65 of the Rules of Court.
ruled that their action has already prescribed; obviously on the wrong
premise that the action is one based on implied or constructive trust. HELD: Yes.
As maintained by petitioners, their action is one based on express
trust and not on implied or constructive trust. Petitioners' Petitioners' posture on the second issue is correct. As they aptly
predecessor-in-interest, Maria de la Cruz y Gutierrez, was an pointed out, the CA, in the exercise of its certiorari jurisdiction under
unlettered woman, a fact borne out by her affixing her thumbmark in Rule 65, is limited to reviewing and correcting errors of jurisdiction
her answer in Cadastral Case No. 18, Exhibit "2-C". Because of her only. It cannot validly delve into the issue of trust which, under the
mental weakness, in a prepared document for her, Exhibit "B-3", she premises, cannot be judiciously resolved without first establishing
consented and authorized her niece Maria de la Cruz y Guevarra to certain facts based on evidence.
administer the lot in question. Such fact is corroborated by the
testimony of Daniel Lansay, the son of Maria de la Cruz y Gutierrez Whether a determinative question is one of law or of fact depends on
that Maria de la Cruz y Guevarra was the one entrusted with the the nature of the dispute. A question of law exists when the doubt or
paying of land taxes. controversy concerns the correct application of law or jurisprudence
to a certain given set of facts; or when the issue does not call for an
Private respondents argue that said Exhibit "B-3" is a portion of the examination of the probative value of the evidence presented, the
tax declaration (Exhibit "B") which was prepared by the Office of the truth or falsehood of facts being admitted. A question of fact obtains
Municipal Assessor/Treasurer where the lot in question is located, and when the doubt or difference arises as to the truth or falsehood of
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
43
facts or when the query invites the calibration of the whole evidence Alberto Makilang, the husband of Visitacion Labanon, one of the
considering mainly the credibility of the witnesses, the existence and children of Constancio. Subsequently, the parcel of land was declared
relevancy of specific surrounding circumstances, as well as their for taxation purposes in the name of Alberto under TD No. 11593.
relation to each other and to the whole, and the probability of the However, in March 1991, the defendants heirs of Maximo Labanon
situation.30 namely, Alicia L. Caniedo, Leopoldo Labanon, Roberto Nieto and
Pancho Labanon, caused to be cancelled from the records of the
defendant Provincial Assessor of Cotabato the aforesaid TD No.
Clearly then, the CA overstepped its boundaries when, in disposing of
11593.
private respondents' petition for certiorari, it did not confine itself to
determining whether or not lack of jurisdiction or grave abuse of
discretion tainted the issuance of the assailed RTC orders, but Thus, on November 12, 1991, petitioners filed a complaint5 for
proceeded to pass on the factual issue of the existence and
Specific Performance, Recovery of Ownership, Attorney’s Fees
enforceability of the asserted trust. In the process, the CA virtually
and Damages with Writ of Preliminary Injunction and Prayer for
resolved petitioner Irene's case for reconveyance on its substantive
Temporary Restraining Order against respondents docketed as Civil
merits even before evidence on the matter could be adduced. Civil
Case No. 865 before the Kidapawan City RTC. After hearing, the trial
Case Nos. 3341-17 and 3342-17 in fact have not even reached the
court rendered a ruling dismissing the complaint. On appeal, the Court
pre-trial stage. To stress, the nature of the trust allegedly constituted
of Appeals reversed the trial court and ruled in favor of the private
in Irene's favor and its enforceability, being evidentiary in nature, are
respondents with respect to the eastern portion of the property in
best determined by the trial court. The original complaints and the
question.
amended complaint certainly do not even clearly indicate whether the
asserted trust is implied or express. To be sure, an express trust
differs from the implied variety in terms of the manner of proving its ISSUE:
existence.31 Surely, the onus of factually determining whether the
trust allegedly established in favor of Irene, if one was indeed 1) Whether or not express trust is created by mere execution
established, was implied or express properly pertains, at the first of documents which did not contain the word “trust”.
instance, to the trial court and not to the appellate court in a special 2) Whether or not the action has prescribed for the private
civil action for certiorari, as here. In the absence of evidence to prove respondents to question the title issued to petitioners.
or disprove the constitution and necessarily the existence of the trust
agreement between Irene, on one hand, and the Benedicto Group, on
the other, the appellate court cannot intelligently pass upon the issue HELD:
of trust. A pronouncement on said issue of trust rooted on speculation
and conjecture, if properly challenged, must be struck down. 1) Yes.

The trust agreement between Maximo Labanon and Constancio

Article 1444 Labanon may still be enforced

Heirs of M. Labanon vs. Heirs of C. Labanon Former Vice-President and Senator Arturo Tolentino, a noted civilist,
G.R. No. 160711, August 14, 2007 explained the nature and import of a trust:

FACTS: During the lifetime of Constancio Labanon, prior to the Trust is the legal relationship between one person having an equitable
outbreak of WWII, he settled upon a piece of alienable and disposable ownership in property and another person owning the legal title to
public agricultural land situated at Brgy. Lanao, Kidapawan, Cotabato such property, the equitable ownership of the former entitling him to
x x x. Constancio cultivated the said lot and introduced permanent the performance of certain duties and the exercise of certain powers
improvements that still exist up to the present. Being of very limited by the latter.
educational attainment, he found it difficult to file his public land
application over said lot. Constancio then asked his brother, Maximo
This legal relationship can be distinguished from other relationships
Labanon who was better educated to file the corresponding public
of a fiduciary character, such as deposit, guardianship, and agency,
land application under the express agreement that they will divide
in that the trustee has legal title to the property. In the case at bench,
the said lot as soon as it would be feasible for them to do so.
this is exactly the relationship established between the parties.
The offer was accepted by Maximo. During the time of the application
it was Constancio who continued to cultivate the said lot in order to
comply with the cultivation requirement set forth under Trusts are classified under the Civil Code as either express or implied.
Commonwealth Act 141. After which, on June 6, 1941, due to Such classification determines the prescriptive period for enforcing
industry of Constancio, Homestead Application No. 244742 such trust.
(E-128802) of his brother Maximo was approved with
Homestead Patent No. 67512. Eventually, Original Certificate of
Article 1444 of the New Civil Code on express trust provides that "[n]o
Title No. P-14320 was issued by the Register of Deeds of Cotabato
particular words are required for the creation of an express trust, it
over said lot in favor of Maximo Labanon.
being sufficient that a trust is clearly intended."

On February 11, 1955, Maximo Labanon executed a document

Civil law expert Tolentino further elucidated on the express trust, thus:
denominated as "Assignment of Rights and Ownership" which was
the document executed to safeguard the ownership and interest of
his brother Constancio Labanon. Pertinent portion of which is No particular form of words or conduct is necessary for the
reproduced as follows: manifestation of intention to create a trust. It is possible to create a
trust without using the word "trust" or "trustee". Conversely, the mere
fact that these words are used does not necessarily indicate an
"That I, MAXIMO LABANON, of legal age, married to Anastacia
intention to create a trust. The question in each case is whether the
Sagarino, and a resident of Kidapawan, Cotabato, for and in
trustor manifested an intention to create the kind of relationship which
consideration of the expenses incurred by my elder brother
to lawyers is known as trust. It is immaterial whether or not he knows
CONSTANCIO xxx I do hereby assign transfer and convey my rights
that the relationship which he intends to create is called a trust, and
to, interests in and ownership on the said eastern to the said
whether or not he knows the precise characteristics of the relationship
CONSTANCIO LABANON, his heirs and assigns, can freely occupy for
which is called a trust.
his own use and benefit xxx.

Correlatively, we ruled in Estate of Edward Miller Grimm v. Estate of

After the death of Constancio Labanon, his heirs executed an
Charles Parsons and Patrick C. Parsons, that:
[e]xtra-judicial settlement of estate with simultaneous sale
over the aforesaid eastern portion of the lot in favor of
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
44
An express trust is created by the direct and positive acts of the Section 31, Rule 130 of the Rules of Court is the repository of the
parties, by some writing or deed or by words evidencing an intention settled precept that "[w]here one derives title to property from
to create a trust; the use of the word trust is not required or another, the act, declaration, or omission of the latter, while holding
essential to its constitution, it being sufficient that a trust is clearly the title, in relation to the property, is evidence against the former."
intended. Thus, petitioners have accepted the declaration made by their
predecessor-in-interest, Maximo Labanon, that the eastern portion of
the land covered by OCT No. P-14320 is owned and possessed by and
In the instant case, such intention to institute an express trust
rightfully belongs to Constancio Labanon and the latter’s heirs.
between Maximo Labanon as trustee and Constancio Labanon as
Petitioners cannot now feign ignorance of such acknowledgment by
trustor was contained in not just one but two written documents, the
their father, Maximo.
Assignment of Rights and Ownership as well as Maximo Labanon’s
April 25, 1962 Sworn Statement. In both documents, Maximo Labanon
recognized Constancio Labanon’s ownership and possession over the Estate of Grimm vs. Estate of Parsons
eastern portion of the property covered by OCT No. P-14320, even as G.R. No. 159810, October 9, 2006
he recognized himself as the applicant for the Homestead Patent over
the land. Thus, Maximo Labanon maintained the title over the FACTS: At the core of the controversy is a stock certificate of the
property while acknowledging the true ownership of Constancio Manila Golf & Country Club, Inc. ("MGCC" or the "Club", for short)
Labanon over the eastern portion of the land. The existence of an covered by Membership Certificate (MC) No. 1088 for 100 units,
express trust cannot be doubted nor disputed. the playing rights over which the Rizal Commercial Banking
Corporation (RCBC), the court-appointed receiver, had, in the
2) No. meantime, leased out. The Club issued MC No. 1088 to replace MC
No. 590. Asserting clashing ownership claims over MC No.1088, albeit
recorded in the name of Charles Parsons ("Parsons", hereinafter) are
On the issue of prescription, we had the opportunity to rule in Bueno petitioner Estate of Edward Miller Grimm and respondent G-P and
v. Reyes that unrepudiated written express trusts are imprescriptible: Company ("G-P & Co.", hereinafter).

While there are some decisions which hold that an action upon a trust Parsons and Edward Miller Grimm (Grimm), together with Conrado
is imprescriptible, without distinguishing between express and implied Y. Simon (Simon), formed in 1952 a partnership for the stated
trusts, the better rule, as laid down by this Court in other decisions, purpose of engaging in the import/export and real estate business.
is that prescription does supervene where the trust is merely an Per SEC Certificate #3305,2 the partnership was registered under the
implied one. The reason has been expressed by Justice J.B.L. Reyes name G - P and Company.
in J.M. Tuason and Co., Inc. vs. Magdangal, 4 SCRA 84, 88, as follows:

Before September 1964, Parsons and Grimm each owned proprietary

Under Section 40 of the old Code of Civil Procedure, all actions for membership share in MGCC,3 as evidenced by MC No. 374 for 100
recovery of real property prescribed in 10 years, excepting only units in the name of Parsons, and MC No. 590, also for 100 units,
actions based on continuing or subsisting trusts that were considered in the name of Grimm. Per records, the Club issued MC No. 590 to
by section 38 as imprescriptible. As held in the case of Diaz v. Grimm on
Gorricho, L-11229, March 29, 1958, however, the continuing or
subsisting trusts contemplated in section 38 of the Code of Civil
Procedure referred only to express unrepudiated trusts, and did not The herein legal dispute started when brothers Patrick and Jose,
include constructive trusts (that are imposed by law) where no both surnamed Parsons, responding to a letter8 from the Estate of
fiduciary relation exists and the trustee does not recognize the trust Grimm, rejected the existence of a trust arrangement between their
at all. father and Grimm involving MC No. 1088.

This principle was amplified in Escay v. Court of Appeals this way: Thus spurned, the Estate of Grimm filed on August 31, 1992
"Express trusts prescribe 10 years from the repudiation of the trust before the RTC of Makati City, a suit for recovery of MC No.
(Manuel Diaz, et al. vs. Carmen Gorricho et al., 54 0.G. p. 8429, Sec. 1088 with damages against the Estate of Parsons, Patrick
40, Code of Civil Procedure)." Parsons and MGCC. In its complaint,9 docketed as Civil Case No.
92-2452 and eventually raffled to Branch 135 of the court, the
Estate of Grimm, represented by its judicial administrator, Ramon J.
In the more recent case of Secuya v. De Selma, we again ruled that Quisumbing, alleged, among other things, the following:
the prescriptive period for the enforcement of an express trust of ten
(10) years starts upon the repudiation of the trust by the trustee.
1. That on September 7, 1964, Grimm transferred MC
No. 590 in trust to Parsons; on the same day, MGCC
In the case at bar, Maximo Labanon never repudiated the express cancelled MC No. 590 and issued MC No. 1088 in the
trust instituted between him and Constancio Labanon. And after name of Parsons;
Maximo Labanon’s death, the trust could no longer be renounced;
thus, respondents’ right to enforce the trust agreement can no longer
be restricted nor prejudiced by prescription. 2. That in separate letters dated February 28, 1968
addressed to MGCC, both Grimm and Parsons stated that
the transfer of MC No. 590 was temporary.
It must be noted that the Assignment of Rights and Ownership and
Maximo Labanon’s Sworn Statement were executed after the
Homestead Patent was applied for and eventually granted with the 5. That Patrick and Jose Parsons had, when reminded of
issuance of Homestead Patent No. 67512 on June 6, 1942. Evidently, the trust arrangement between their late father and
it was the intent of Maximo Labanon to hold the title over the land in Grimm, denied the existence of a trust over the Club share
his name while recognizing Constancio Labanon’s equitable ownership and refused to return the same; and
and actual possession of the eastern portion of the land covered by
OCT No. P-14320. 6. That MGCC had refused, despite demands, to cancel
MC No. 1088 and issue a new certificate in the name of
In addition, petitioners can no longer question the validity of the the Estate of Grimm.
positive declaration of Maximo Labanon in the Assignment of Rights
and Ownership in favor of the late Constancio Labanon, as the After a lengthy trial, the trial court rendered udgment12 finding for
agreement was not impugned during the former’s lifetime and the the Estate of Grimm. In gist, the trial court predicated its ruling on
recognition of his brother’s rights over the eastern portion of the lot the postulate that the temporary transfer of Grimm's original share
was further affirmed and confirmed in the subsequent April 25, 1962 in MGCC - covered by MC No. 590 whence MC No. 1088 descended
Sworn Statement. – to Parsons, created a trust relationship between the two.
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
45
ISSUE: Whether or not the transfer of MC No. 590 effected on Petitioners filed this case but the trial court denied the action for
September 7, 1964 by Grimm in favor of Parsons resulted, as the quieting of title which was later affirmed by the appellate court.
petitioner would have it, in the formation of a trust relation between
the two.
ISSUE:
HELD: Yes.
1. Whether or not there was express trust created by the
Agreement of Partition.
Trust is the legal relationship between one having an equitable
ownership in property and another person owning the legal title to 2. Whether or not there was a valid transfer or conveyance of
such property, the equitable ownership of the former entitling him to one-third (1/3) portion of Lot 5679 by Maxima Caballero in
the performance of certain duties and the exercise of certain powers favor of Paciencia Sabellona, by virtue of [the] Agreement
by the latter.26 Trust relations between parties may be express, as of Partition.
when the trust is created by the intention of the trustor.27 An express
trust is created by the direct and positive acts of the parties, by some HELD:
writing or deed or by words evidencing an intention to create a trust;
the use of the word trust is not required or essential to its constitution, 1. Yes.
it being sufficient that a trust is clearly intended.28 Implied trust comes
into existence by operation of law, either through implication of an
Notwithstanding its purported nomenclature, this Agreement is not
intention to create a trust as a matter of law or through the imposition
one of partition, because there was no property to partition and the
of the trust irrespective of, and even contrary to any such intention.29
parties were not co-owners. Rather, it is in the nature of a trust
agreement.
Judging from their documented acts immediately before and
subsequent to the actual transfer on September 7, 1964 of MC No.
Trust is the right to the beneficial enjoyment of property, the legal
590, Parsons, as transferee, and Grimm, as transferor, indubitably
title to which is vested in another. It is a fiduciary relationship that
contemplated a trust arrangement. Consider:
obliges the trustee to deal with the property for the benefit of the
beneficiary.13 Trust relations between parties may either be express
There can be no quibbling, owing to the letter exchanges between the or implied. An express trust is created by the intention of the trustor
Club, in particular its Honorary Secretary E. C. Von Kauffman, and or of the parties. An implied trust comes into being by operation of
Parsons, that the reason Grimm transferred his MC No. 590 to Parsons law.14
was because of the latter's wish to accommodate one Daikichi
Yoshida. Earlier, Parsons recommended to Club management the
The present Agreement of Partition involves an express trust. Under
approval of Mr. Yoshida's "Application For Waiting List Eligible To
Article 1444 of the Civil Code, "[n]o particular words are required for
[Club] Proprietary Membership."30 In a letter of August 10, 196431 to
the creation of an express trust, it being sufficient that a trust is clearly
the MGCC's Board of Directors, Parsons endorsed the application of
intended." That Maxima Caballero bound herself to give one third of
Yoshida as Club member. While the Club's response does not appear
Lot No. 5629 to Paciencia Sabellona upon the approval of the former's
in its files, it is quite apparent that Parsons addressed a letter to
application is clear from the terms of the Agreement. Likewise, it is
Kauffman requesting that Yoshida be taken in as a Company assignee.
evident that Paciencia acquiesced to the covenant and is thus bound
In his reply-letter32 of August 29, 1964, Kauffman explained why he
to fulfill her obligation therein.
cannot, under Club rules, favorably act on Parsons' specific request,
but suggested a viable solution,
2. No.
Secuya vs. De Selma
G.R. No. 136021, February 22, 2000 As a result of the Agreement, Maxima Caballero held the portion
specified therein as belonging to Paciencia Sabellona when the
FACTS: The present Petition is rooted in an action for quieting of title application was eventually approved and a sale certificate was issued
filed before the RTC by Benigna, Miguel, Marcelino, Corazon, Rufina, in her name.15 Thus, she should have transferred the same to the
Bernardino, Natividad, Gliceria and Purita — all surnamed Secuya — latter, but she never did so during her lifetime. Instead, her heirs sold
against Gerarda M. vda. de Selma. the entire Lot No. 5679 to Silvestre Aro in 1955.

Maxima Caballero and Paciencia Sabellona entered into an From 1954 when the sale certificate was issued until 1985 when
"Agreement of Partition" which provides among others: petitioners filed their Complaint, Paciencia and her successors-in-
interest did not do anything to enforce their proprietary rights over
xxxxx the disputed property or to consolidate their ownership over the same.
In fact, they did not even register the said Agreement with the
Registry of Property or pay the requisite land taxes. While petitioners
4. That as soon as the application is approved by the had been doing nothing, the disputed property, as part of Lot No.
Director of Lands, Manila, in my favor, I hereby bind 5679, had been the subject of several sales transactions16 and
myself to transfer the one-third (l/3) portion of the above covered by several transfer certificates of title.
mentioned lot in favor of my aunt, Paciencia Sabellana y
Caballero, of legal age, single, residing and with postal
address in Tungkop, Minglanilla, Cebu. Said portion of The Repudiation of the Express Trust
one-third (1/3) will be subdivided after the approval of
said application and the same will be paid by her to the While no time limit is imposed for the enforcement of rights under
government [for] the corresponding portion. express trusts, prescription may, however, bar a beneficiary's action
for recovery, if a repudiation of the trust is proven by clear and
Xxxxx convincing evidence and made known to the beneficiary.18

Paciencia Sabellona took possession and occupation of that one-third There was a repudiation of the express trust when the heirs of Maxima
portion of Lot 5679 adjudicated to her. Later, she sold the three Caballero failed to deliver or transfer the property to Paciencia
thousand square meter portion thereof to Dalmacio Secuya on Sabellona, and instead sold the same to a third person not privy to
October 20, 1953. the Agreement. In the memorandum of incumbrances of TCT No.
308719 issued in the name of Maxima, there was no notation of the
Agreement between her and Paciencia. Equally important, the
Maximo Caballeron sold the subject property in favor Silvestre Aro Agreement was not registered; thus, it could not bind third persons.
which later was sold to private respondents. Neither was there any allegation that Silvestre Aro, who purchased
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
46
the property from Maxima's heirs, knew of it. Consequently, the Plaintiff added that defendant acted in bad faith in including the
subsequent sales transactions involving the land in dispute and the subject properties in the inventory of Alexander Ty’s estate, for she
titles covering it must be upheld, in the absence of proof that the said was well aware that Alexander was simply holding the said properties
transactions were fraudulent and irregular. in trust for his siblings.

The trial court rendered a decision declaring plaintiff as the true and
Article 1447 lawful owner of the subject properties. The appellate court reversed
the trial court.
Ty vs. Ty
G.R. No. 165696, April 30, 2008 ISSUE: Whether or not there was implied trust 1. EDSA Property 2.
Wack-Wack Property and Meridien Condominium
FACTS: On May 19, 1988, Alexander Ty, son of Alejandro B. Ty and
Bella Torres, died of cancer at the age of 34. He was survived by his
wife, Sylvia Ty, and his only daughter, Krizia Katrina Ty. A few months HELD:
after his death, a petition for the settlement of his intestate estate
was filed by Sylvia Ty in the Regional Trial Court of Quezon City. 1. Yes.

On November 23, 1990, Sylvia Ty submitted to the intestate Court in Petitioner contends that the EDSA property, while registered in the
Quezon City an inventory of the assets of Alexander’s estate, name of his son Alexander Ty, is covered by an implied trust in his
consisting of shares of stocks and a schedule of real estate properties, favor under Article 1448 of the Civil Code. This, petitioner argues, is
which included the following: because he paid the price when the property was purchased and did
so for the purpose of having the beneficial interest of the property.
1. EDSA Property; 2. Meridien Condominium; 3. Wack-Wack
Property. Article 1448 of the Civil Code provides:

On November 4, 1992, Sylvia Ty asked the intestate Court to sell or Art. 1448. There is an implied trust when property is sold,
mortgage the properties of the estate in order to pay the additional and the legal estate is granted to one party but the price is
estate tax of P4,714,560.02 assessed by the BIR. paid by another for the purpose of having the beneficial
interest of the property. The former is the trustee, while the
latter is the beneficiary. However, if the person to whom
Apparently, this action did not sit well with her father-in-law, the the title is conveyed is a child, legitimate or illegitimate, of
plaintiff-appellee, for on December 16, 1992, Alejandro Ty, father one paying the price of the sale, no trust is implied by law,
of the deceased Alexander Ty, filed a complaint for recovery it being disputably presumed that there is a gift in favor of
of properties with prayer for preliminary injunction and/or the child.
temporary restraining order. Docketed as Civil Case No. 62714,
of the Regional Trial Court of Pasig, Branch 166, the complaint named
Sylvia Ty as defendant in her capacity as [Administratrix] of the The CA conceded that at least part of the purchase price of the EDSA
Intestate Estate of Alexander Ty. property came from petitioner. However, it ruled out the existence of
an implied trust because of the last sentence of Article 1448: x x x
However, if the person to whom the title is conveyed is a child,
Forthwith, on December 28, 1992, defendant Sylvia Ty, as legitimate or illegitimate, of the one paying the price of the sale, no
Administratrix of the Intestate Estate of Alexander Ty, tendered her trust is implied by law, it being disputably presumed that there is a
opposition and claimed that plaintiff Alejandro Ty had no actual or gift in favor of the child.
existing right, which entitles him to the writ of preliminary injunction,
for the reason that no express trust concerning an immovable maybe
proved by parole evidence under the law. In addition, Sylvia Ty Petitioner now claims that in so ruling, the CA departed from
argued that the claim is barred by laches, and more than that, that jurisprudence in that such was not the theory of the parties.
irreparable injury will be suffered by the estate of Alexander Ty should
the injunction be issued. Petitioner, however, forgets that it was he who invoked Article 1448
of the Civil Code to claim the existence of an implied trust. But Article
It was asserted by plaintiff Alejandro Ty that he owns the EDSA 1448 itself, in providing for the so-called purchase money resulting
property, as well as the Meridien Condominium, and the Wack-Wack trust, also provides the parameters of such trust and adds, in the same
property, which were included in the inventory of the estate of breath, the proviso: "However, if the person to whom the title is
Alexander Ty. Plaintiff alleged that on March 17, 1976, he bought the conveyed is a child, legitimate or illegitimate, of the one paying the
EDSA property from a certain Purificacion Z. Yujuico; and that he price of the sale, NO TRUST IS IMPLIED BY LAW, it being disputably
registered the said property in the name of his son, Alexander Ty, presumed that there is a gift in favor of the child." (Emphasis
who was to hold said property in trust for his brothers and sisters in supplied.)
the event of his (plaintiffs) sudden demise. Plaintiff further alleged
that at the time the EDSA property was purchased, his son and name- Stated otherwise, the outcome is the necessary consequence of
sake was still studying in the United States, and was financially petitioner’s theory and argument and is inextricably linked to it by the
dependent on him. law itself.

As to the two other properties, plaintiff averred that he bought the The CA, therefore, did not err in simply applying the law.
Meridien Condominium sometime in 1985 and the Wack-Wack
property sometime in 1987; that titles to the aforementioned
properties were also placed in the name of his son, Alexander Ty, who Article 1448 of the Civil Code is clear. If the person to whom the title
was also to hold these properties in trust for his brothers and sisters. is conveyed is the child of the one paying the price of the sale, and in
Plaintiff asserted that at [the] time the subject properties were this case this is undisputed, NO TRUST IS IMPLIED BY LAW. The law,
purchased, Alexander Ty and Sylvia Ty were earning minimal income, instead, disputably presumes a donation in favor of the child.
and were thus financially incapable of purchasing said properties. To
bolster his claim, plaintiff presented the income tax returns of On the question of whether or not petitioner intended a donation, the
Alexander from 1980-1984, and the profit and loss statement of CA found that petitioner failed to prove the contrary. This is a factual
defendant’s Joji San General Merchandising from 1981-1984. finding which this Court sees no reason the record to reverse.
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
47
The net effect of all the foregoing is that respondent is obliged to A few days thereafter, upon learning that the sale was already
collate into the mass of the estate of petitioner, in the event of his consummated, appellant confronted the Casipits and Rodolfo Tigno
death, the EDSA property as an advance of Alexander’s share in the and asked them to annul the sale, but his request was not heeded.
estate of his father,11 to the extent that petitioner provided a part of
its purchase price.
On May 24, 1989, the plaintiff filed Civil Case No. 16673 for
"Reconveyance, Annulment of Document, Recovery of Possession and
2. No. Damages".

Petitioner would have this Court overturn the finding of the CA that After trial on the merits, the trial court7 dismissed the complaint which
as regards the Meridien Condominium and the Wack-Wack property, the appellate court reversed on appeal, declaring private respondent
petitioner failed to show that the money used to purchase the same as the owner of the properties thereof.
came from him.
ISSUE: Whether or not there exist an implied trust between Petitioner
Again, this is clearly a factual finding and petitioner has advanced no Rodolfo Tigno and Private Respondent Eduardo Tigno.
convincing argument for this Court to alter the findings reached by
the CA. HELD: Yes.

The appellate court reached its findings by a thorough and painstaking Implied trusts are those which are deducible by operation of law from
review of the records and has supported its conclusions point by point, the nature of the transaction as matters of equity, independently of
providing citations from the records. This Court is not inclined to the particular intention of the parties. 10 An implied trust arises where
reverse the same. a person purchases land with his own money and takes conveyance
thereof in the name of another. In such a case, the property is held
on resulting trust in favor of the one furnishing the consideration for
Among the facts cited by the CA are the sources of income of
the transfer, unless a different intention or understanding appears.
Alexander Ty who had been working for nine years when he
The trust which results under such circumstances does not arise from
purchased these two properties, who had a car care business, and
a contract or an agreement of the parties, but from the facts and
was actively engaged in the business dealings of several family
circumstances; that is to say, the trust results because of equity and
corporations, from which he received emoluments and other
it arises by implication or operation of law. 11 The species of implied
benefits.12
trust raised by private respondent was extensively discussed by the
Court, through the learned Mr. Justice Hilario G. Davide, Jr.,
The CA, therefore, ruled that with respect to the Meridien in Morales, et al. vs. Court of Appeals, et al.: 12
Condominium and the Wack-Wack property, no implied trust was
created because there was no showing that part of the purchase price
A trust is the legal relationship between one person having
was paid by petitioner and, on the contrary, the evidence showed that
an equitable ownership in property and another person
Alexander Ty had the means to pay for the same.
owning the legal title to such property, the equitable
ownership of the former entitling him to the performance
Tigno vs. Court of Appeals of certain duties and the exercise of certain powers by the
G.R. No. 110115, October 8, 1997 latter. 13 The characteristics of a trust are:

FACTS: Sometime in January, 1980, Bienvenido Sison, Remedios 1. It is a relationship;

Sison and the heirs of Isaac Sison, namely: Manuel Sison, Gerardo
Sison and Adelaida Sison appointed Dominador Cruz as agent to
sell three (3) parcels of land. 2. it is a relationship of fiduciary character;

Sometime in April 1980, Rodolfo Tigno learned that the 3. it is a relationship with respect to property, not
abovedescribed properties were for sale. Accordingly, he approached one involving merely personal duties;
Cruz and told the latter to offer these parcels of land to his brother,
Eduardo Tigno, herein appellant. 4. it involves the existence of equitable duties
imposed upon the holder of the title to the
Pursuant thereto, Cruz and Rodolfo Tigno went to appellant's Makati property to deal with it for the benefit of another;
office to convince the latter to buy the properties earlier described. At and
first, appellant was reluctant, but upon Rodolfo Tigno's prodding,
5. it arises as a result of a manifestation of
After giving the downpayment, appellant instructed Cruz and intention to create the relationship. 14
Atty. Manuel to place the name of Rodolfo Tigno as "vendee"
in the deeds of sale to be subsequently prepared. This Trusts are either express or implied. Express trusts are created by the
instruction was given to enable Rodolfo Tigno to mortgage these intention of the trustor or of the parties, while implied trusts come
properties at the Philippine National Bank (PNB), Lingayen Branch, for into being by operation of law, 15 In turn, implied trusts are either
appropriate funds needed for the development of these parcels of land resulting or constructive trusts. Resulting trusts are based on the
as "fishponds". equitable doctrine that valuable consideration and not legal title
determines the equitable title or interest and are presumed always to
On April 29, 1989, Rodolfo Tigno, without the knowledge and have been contemplated by the parties. They arise from the nature
consent of appellant, sold to Spouses Edualino Casipit and or circumstances of the consideration involved in a transaction
Avelina Casipit 508.56 square meters of the land previously whereby one person thereby becomes invested with legal title but is
owned by Bienvenido Sison (Exh. E). At the time of sale, the obligated in equity to hold his legal title for the benefit of another. On
Casipits were aware that the portion of the land they bought the other hand, constructive trusts are created by the construction of
was owned by appellant, not Rodolfo Tigno. On May 16, 1989, equity in order to satisfy the demands of justice and prevent unjust
appellant learned that Rodolfo Tigno is "negotiating" a portion of his enrichment. They arise contrary to intention against one who, by
land to the Casipits. Accordingly, appellant sent a letter (Exh. D) to fraud, duress or abuse of confidence, obtains or holds the legal right
the Casipits advising them to desist from the intended sale, not to property which he ought not, in equity and good conscience, to
knowing that the sale was already consummated as early as April 29, hold. 16
1989.
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A resulting trust is exemplified by Article 1448 of the Civil Code, which Even under the Torrens System of land registration, this
reads: Court in some instances did away with the irrevocability or
indefeasibility of a certificate of title to prevent injustice
against the rightful owner of the property.
Art. 1448. There is an implied trust when property is sold, and the
legal estate is granted to one party but the price is paid by another
for the purpose of having the beneficial interest of the property. The In this petition, petitioners deny that an implied trust was constituted
former is the trustee, while the latter is the beneficiary. However, if between the brothers Rodolfo and Eduardo. They contend that,
the person to whom the title is conveyed is a child, legitimate or contrary to the findings of Respondent Court, their Exhibit 16 25 and
illegitimate, of the one paying the price of the sale, no trust is implied Exhibit 17 26 were fully authenticated by Dominador Cruz, an
by law, it being disputably presumed that there is a gift in favor of the "instrumental witness." Hence, he should not be allowed to vary the
chid. plain content of the two documents indicating that Rodolfo Tigno was
the vendee.
The trust created under the first sentence of Article 1448 is
sometimes referred to as a purchase money resulting Aside from the "trust and confidence" reposed in him by his brother,
trust. 17 The trust is created in order to effectuate what the law Petitioner Rodolfo was named as vendee in the deeds of sale to
presumes to have been the intention of the parties in the facilitate the loan and mortgage the brothers were applying for to
circumstances that the person to whom the land was conveyed holds rehabilitate the fishponds. Be it remembered that private respondent
it as trustee for the person who supplied the purchase money. 18 was a Makati-based business executive who had no time to follow up
the loan application at the PNB branch in Lingayen, Pangasinan and,
at the same time, to tend the fish farm on a daily basis. Atty. Modesto
To give rise to a purchase money resulting trust, it is
Manuel, who prepared and notarized the deeds of sale, unhesitatingly
essential that there be:
affirmed the unwritten agreement between the two brothers.

1. an actual payment of money, property or services, or an Huang vs. Court of Appeals

equivalent, constituting valuable consideration; G.R. No. 108525, September 13, 1994

2. and such consideration must be furnished by the alleged FACTS: Sometime in 1965 respondent Dolores Sandoval wanted to
beneficiary of a resulting trust. buy two (2) lots in Dasmariñas Village, Makati, but was advised by
petitioner Milagros Huang, wife of her brother, petitioner Ricardo
Huang, that the policy of the subdivision owner forbade the
There are recognized exceptions to the establishment of an implied acquisition of two (2) lots by a single individual. Consequently, Dolores
resulting trust. The first is stated in the last part of Article 1448 itself. purchased Lot 21 and registered it in her name. She also purchased
Thus, where A pays the purchase money and title is conveyed by the adjacent lot, Lot 20, but heading the advice of Milagros, the deed
absolute deed to A's child or to a person to whom A stands in loco of sale was placed in the name of Ricardo and Registered in his name
parentis and who makes no express promise, a trust does not result, under TCT No. 204783. Thereafter, Dolores constructed a residential
the presumption being that a gift was intended. Another exception is, house on Lot 21. Ricardo also requested her permission to construct
of course, that in which an actual contrary intention is proved. Also a small residential house on Lot 20 to which she agreed inasmuch as
where the purchase is made in violation of an existing statute and in she was then the one paying for apartment rentals of the Huang
evasion of its express provision, no trust can result in favor of the spouses.
party who is guilty of the fraud.

As a rule, the burden of proving the existence of a trust is On 19 March 1968, to protect her rights and interests as the lawful
on the party asserting its existence, and such proof must owner of Lot 20 and its improvements, Dolores requested the Huangs
be clear and satisfactorily show the existence of the trust to execute in her favor a deed of absolute sale with assumption of
and its elements. 21 While implied trusts may be proved by mortgage over the property. The latter obliged.
oral evidence, 22 the evidence must be trustworthy and
received by the courts with extreme caution, and should not
be made to rest on loose, equivocal or indefinite On 15 March 1980, the Huang spouses leased the house to Deltron-
declarations. Trustworthy evidence is required because oral Sprague Electronics Corporation for its various executives as official
evidence can easily be fabricated. 23 quarters without first securing the permission of Dolores. Dolores
tolerated the lease of the property as she did not need it at that time.
But, after sometime, the lessees started prohibiting the Sandoval
In Chiao Liong Tan vs. Court of Appeals, we ruled: 24
family from using the swimming pool and the Huangs then began
challenging the Sandovals' ownership of the property.
A certificate of registration of a motor vehicle in one's name
indeed creates a strong presumption of ownership. For all On 26 August 1980, Dolores lodged a complaint before the office of
practical purposes, the person in whose favor it has been the Barangay Captain praying that the spouses Ricardo and Milagros
issued is virtually the owner thereof unless proved Huang be made to execute the necessary request to the SSS for the
otherwise. In other words, such presumption is rebuttable approval of the deed of sale with assumption of mortgage, as well as
by competent proof. for the release in her favor of the owner's duplicate certificate of title
in its possession so that the deed could be duly annotated on the title
The New Civil Code recognizes cases of implied trust other and/or a new certificate of title issued in her name.
than those enumerated therein. (fn: Art. 1447, New Civil
Code) Thus, although no specific provision could be cited to On 22 December 1980, Ricardo and Milagros Huang filed a complaint
apply to the parties herein, it is undeniable that an implied against the spouses Dolores and Aniceto Sandoval in the then Court
trust was created when the certificate of registration of the of First Instance of Rizal, docketed as Civil Case No. 39702, seeking
motor vehicle was placed in the name of petitioner although the nullity of the deed of sale with assumption of mortgage and/or
the price thereof was not paid by him but by private quieting of title to Lot 20. They alleged that the Sandovals made them
respondent. The principle that a trustee who puts a sign blank papers which turned out to be a deed of sale with
certificate of registration in his name cannot repudiate the assumption of mortgage over Lot 20.
trust by relying on the registration is one of the well-known
limitations upon a title. A trust, which derives its strength
from the confidence one reposes on another especially Meanwhile, on 19 February 1981, Dolores filed a complaint against
between brothers, does not lose that character simply the Huang spouses and the SSS before the same trial court, docketed
because of what appears in a legal document. as Civil Case No. 40288, praying among other things that: (a) the SSS
be restrained from releasing the owner's copy of TCT No. 204783 to
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
49
the Huangs; (b) the SSS be ordered instead to release to her said title intention of the parties, and as a general rule, it arises where, and
as well as the mortgaged thereon; and (c) the Registered of Deeds of only where such may be reasonably presumed to be the intention of
Rizal be ordered to register the deed of sale, cancel TCT No. 204783 the parties, as determined from the facts and circumstances existing
and issue another one in her name. at the time of the transaction out of which it is sought to be
established. 24
Both cases were consolidated and jointly tried. The trial court
rendered favorable judgements to the private respondent. On appeal In the present case, Dolores provided the money for the purchase of
to the Court of Appeals, the decision of the trial court was affirmed Lot 20 but the corresponding deed of sale and transfer certificate of
title were placed in the name of Ricardo Huang because she was
advised that the subdivision owner prohibited the acquisition of two
ISSUE: Whether or not implied trust exist between Dolores and (2) lots by a single individual. Guided by the foregoing definitions, we
Spouses Huang. are in conformity with the common finding of the trial court and
respondent court that a resulting trust was created. Ricardo became
HELD: Yes. the trustee of Lot 20 and its improvements for the benefit of Dolores
as owner. The pertinent law is Art. 1448 of the New Civil Code which
Ricardo claimed that he bought Lot 20 with his own money on provides that there is an implied trust when property is sold and the
installment: the first installment of P19,341.00 was paid on 5 legal estate is granted to one party but the price is paid by another
November 1965, and the second installment of P39,279.75 was paid for the purpose of having the beneficial interest for the property. A
on 4 April 1966. He said that the money came from his salary as resulting trust arises because of the presumption that he who pays
employee of the Universal Textile Mills, his commission as rice sales for a thing intends a beneficial interest therein for himself.
agent, his involvement in politics and other undeclared income.
Ramos vs. Court of Appeals
But Ricardo's pretense was easily unmasked by the following G.R. No. 108121, May 10, 1994
circumstances: (1) His annual income as employee of Textile Mills was
only P6,795.05 in 1964, 5 P6,295.05 in 1965 6 and P7,154.15 in FACTS: From the evidence adduced at the joint trial of these related
1966; 7 as of 10 June 1967, he was only receiving a monthly salary of cases, the Court finds that petitioner/plaintiff Lydia Celestino, was
P600.00; employed in the economic research department of the Central Bank
of the Philippines from 1949 to 1983, while the late Herminio Ramos
(Herminio, hereinafter) — the deceased spouse of
Dolores was able to prove by overwhelming evidence that she respondent/defendant Herminia L. Ramos (Herminia hereinafter) and
purchased Lot 20 with her own funds. She testified that Milagros predecessor-in-interest of Herminia and the rest of defendants — was
informed her that she could not buy two (2) lots in the village in her employed during his lifetime in the same department of the Central
name; instead, she suggested that one of the lots be bought in the Bank until his retirement sometime in 1972.
name of Ricardo. This testimony we never refuted by Ricardo.
Moreover, the Agreements to Purchase and Sell Lots 20 9 and
21 10 were both executed on 5 November 1965 and the first Sometime in 1961, the now defunct People's Homesite & Housing
installments for both lots were paid on the same date, while the Corporation (PHHC) awarded the rights to buy certain parcels of land
second installments were paid on 4 April 1966. These facts suggest to employees of the Central Bank. As a Central Bank employee,
that the lots were bought in a single transaction by only one person. Herminio was awarded the rights to buy the parcel of land designated
as Lot 25, Block 86 of the subdivision plan Psd-68807, with an area of
some 400 square meters, and situated in what is now known as
Sikatuna Village in Diliman, Quezon City, For the price of
The testimony of Dolores is more in accord with reason and clearly P3,800.00 payable in installments, Herminio then sold and
disproves Ricardo's gratuitous allegations. She testified that she asked transferred to Lydia his said rights to buy said property, and
Ricardo and Milagros to sign the deed of sale for her and her children's Lydia paid said price in several installments. Having acquired
protection because time would come when they would want the the rights to buy the property, Lydia assumed the obligation of paying
property for themselves. Besides, according to her, the Huang to the PHHC the purchase price thereof. Thus, Lydia paid to the PHHC
spouses read the contents of the deed and signed it before the notary the monthly amortizations of P34.11 per month over a period of some
public without any compulsion from her. We are therefore drawn to 10 years.
the inevitable conclusion that the Huang spouses voluntarily signed
the deed before the notary public with full knowledge of its contents
and in recognition of Dolores' ownership over Lot 20 and its When the corresponding transfer certificate of title — Transfer
improvements. Certificate of Title (TCT) No. 204173 of the Registry of Deeds for
Quezon City — was issued after the full payment of the purchase
price, the certificate was in the name of "HERMINIO T. RAMOS, of
We shall discuss the merit, nay, the demerit of the Huang petition. legal age, Filipino, married to Herminia L. Ramos" (Exhs. 1-A & 6-A).
First, there is need to define the basic concepts in a trust relationship. Herminio and Herminia knew of and consented to the delivery to Lydia
Trust is a fiduciary relationship with respect to property which involves of said title certificate's owner's duplicate copy (Exh. D, also Exh. 1),
the existence of equitable duties imposed upon the holder of the title and said copy since then has been in Lydia's possession and custody.
to the property to deal with it for the benefit of another. 20 A person On or about November 26, 1974, Herminio, together with Herminia,
who establishes a trust is called the trustor; one in whom confidence executed in Lydia's favor an irrevocable special power of attorney
is reposed as regards property for the benefit of another person is (Exh. E), in sum empowering Lydia to sell, mortgage, or lease the
known as the trustee; and the person for whose benefit the trust has subject property and to dispose of the proceeds thereof in any manner
been created is referred to as the beneficiary 21 or cestui que trust. she wants.
Trust is either express or implied. Express trust is created by the
intention of the trustor or of the parties. Implied trust comes into
being by operation of law. 22 The latter kind or neither constructive or On August 22, 1985, Branch 104 of the Regional Trial Court of the
resulting trust. A constructive trust is imposed where a person holding National Capital Judicial Region in Quezon City issued in its LTC Case
title to property is subject to an equitable duty to convey it to another No. Q-3150 (85) an Order (Exh. 9), in sum cancelling and declaring
on the ground that he would be unjustly enriched if he were permitted null and void "the owner's duplicate copy of Transfer Certificate of
to retain it. The duty to convey the property arises because it was Title No. 204173 that was lost". Said Order was issued upon
acquired through fraud, duress, undue influence or mistake, or Herminia's petition, in sum claiming that the original owner's duplicate
through breach of a fiduciary duty, or through the wrongful disposition copy was lost and missing.
of another's property. On the other hand, a resulting trust arises
where a person makes or causes to be made a disposition of property After having belatedly learned of the issuance of said Order of RTC
under circumstances which raise an inference that he does not intend Branch 104, Lydia on March 21, 1986 filed her petition herein,
that the person taking or holding the property should have the docketed as LRC Case No. Q-3387 (86), in sum praying that said Order
beneficial interest in the property. 23 It is founded on the presumed of August 22, 1985 in LRC Case No. Q-3150 (85) be declared null and
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
50
void and without legal effect and that the new owner's duplicate copy title mentioned Virginia T. Reyes as the owner. The explanation was
issued and delivered to Herminia be cancelled, on the ground that fully supported by the agreement (kasunduan) duly notarized on June
Herminia secured such new owner's duplicate copy thru fraud and 15, 1955 (Exh. 1) which shows that Faustino Reyes was the buyer of
misrepresentation because she well knew that the supposedly "lost" three lots with a total consideration of P14,000.00. At the time of the
owner's duplicate copy was in Lydia's possession and custody. execution of this agreement, he paid P11,000.00, leaving only a
balance of P3,000.00 which he paid later. Virginia, then only 18 years
of age, could not paid (sic) the price of the lot in question. By no
The trial court's decision finds that an implied or resulting trust was
stretch of the imagination can it be asserted that she bought the land
created by operation of law when the subject property was sold by
herself as the deed of sale purports to show.
the PHHC, with the legal title being vested in Herminio as the
corresponding TCT was issued in his name, but with the beneficial
title, however, being vested in Lydia as she was the one who paid the Virginia married petitioner, who claims ownership of the property in
purchase price of the property out of her funds after Herminio had question when the former died. Petitioner claims that there exists
earlier sold and transferred to her his rights to buy the property and expressed trust between Faustino and Virginia, the latter being the
she had fully paid him the purchase price for said rights; The Court of daughter of the former.
Appeals, in its Decision of 30 September 1991, affirmed the decision
of the trial court.
Petitioner filed a complaint for conveyance of property against
Faustino.
ISSUE: Whether or not the trust was valid.
Petitioner assumes that an express trust over an immovable was
HELD: No.
created when it was made to appear that the land in question was
sold to and registered in the name of Faustino Reyes' daughter,
The inevitable conclusion then is that Lydia Celestino, knowing of her Virginia — wife of petitioner — to conform with the limitation imposed
disqualification to acquire a lot from the PHHC at the subdivision by the vendor that no vendee could purchase from the former more
reserved for qualified Central Bank employees, tried to get one than two lots. Consequently, pursuant to Article 1444 of the Civil
through the backdoor. Otherwise stated, she wanted to get indirectly Code, such a trust cannot be proved by parol evidence.
that which she could not do so directly. Having acted with evident bad
faith, she did not come to court with clean hands when she asked for
The trial court and appellate courts upheld the ownership of Faustino
the reconveyance of the property on the basis of a resulting trust
over the properties in question admitting oral testimony of private
under Article 1448 of the Civil Code.
respondents.

A resulting trust is an "intent-enforcing" trust, based on a finding by

ISSUE: Whether or not trust exist between Faustino and Virginia.
the court that in view of the relationship of the parties their acts
express an intent to have a trust, even though they did not use
HELD: No.
language to that effect. The trust is said to result in law from the acts
of the parties. However, if the purpose of the payor of the
If his assumption is correct, Article 1444 is applicable and both the
consideration in having title placed in the name of another was to
trial court and the respondent Court then erred in admitting the oral
evade some rule of the common or statute law, the courts will not
testimony of Faustino Reyes concerning the facts surrounding the
assist the payor in achieving his improper purpose by enforcing a
"sale" of the lot in favor of Virginia. Unfortunately, the assumption is
resulting trust for him in accordance with the "clean hands" doctrine.
wrong.
The court generally refuses to give aid to claims from rights arising
out of an illegal transaction, such as where the payor could not
lawfully take title to land in his own name and he used the grantee as There is neither an express nor implied trust in this case. The
a mere dummy to hold for him and enable him to evade the land applicable provision of the Civil Code, as correctly pointed out by
laws, 28 e.g., an alien who is ineligible to hold title to land, who pays respondent Court, is Article 1448 which provides as follows:
for it and has the title put in the name of a citizen.
There is an implied trust when property is sold, and the
Otherwise stated, as an exception to the law on trusts, "[a] trust or a legal estate is granted to one party but the price is paid by
provision in the terms of a trust is invalid if the enforcement of the another for the purpose of having the beneficial interest of
trust or provision would be against public policy, even though its the property. The former is the trustee, while the latter is
performance does not involve the commission of a criminal or tortious the beneficiary. However, if the person to whom the title is
act by the trustee." 29 The parties must necessarily be subject to the conveyed is a child, legitimate or illegitimate, of the one
same limitations on allowable stipulations in ordinary contracts, i.e., paying the price of the sale, no trust is implied by law, it
their stipulations must not be contrary to law, morals, good customs, being disputably presumed that there is a gift in favor of
public order, or public policy. 30 What the parties then cannot the child. (Emphasis supplied).
expressly provide in their contracts for being contrary to law and
public policy, they cannot impliedly or implicitly do so in the guise of Accordingly, testimonial evidence, such as that offered by Faustino
a resulting trust. Reyes, that the land was not given as a gift to Virginia, was properly
allowed to rebut the disputable presumption established in the
Although the contract should be voided for being contrary to public foregoing article.
policy, we deem it equitable to allow the private respondents to
recover what they had paid for the land with legal interest thereon Article 1449
commencing from the date of the filing of the complaint in Civil Case
No. Q-49272. Thus, she is entitled to the return of the amount she
had paid to Herminio in the sum of P3,800.00 and the refund of the Nazareno vs. Court of Appeals
installments she had paid to the PHHC (P34.11 monthly for a period G.R. No. 138842, October 18, 2000
of ten years), with legal interest thereon.
FACTS: Maximino Nazareno, Sr. and Aurea Poblete were husband
De los Santo vs. Reyes and wife. Aurea died on April 15, 1970, while Maximino, Sr. died on
G.R. No. 45027, January 27, 1992 December 18, 1980. They had five children, namely, Natividad,
Romeo, Jose, Pacifico, and Maximino, Jr. Natividad and Maximino, Jr.
are the petitioners in this case, while the estate of Maximino, Sr.,
FACTS: Faustino B. Reyes, notwithstanding that the title was in the
Romeo, and his wife Eliza Nazareno are the respondents.
name of Virginia T. Reyes, bought a certain property pursuant to the
deed of sale where the latter was made to appear as the buyer. It
was clearly explained why both the deed of sale and the certificate of
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
51
During their marriage, Maximino Nazareno, Sr. and Aurea Poblete 10 and 11 to Jose in the event the latter returned from abroad.
acquired properties in Quezon City and in the Province of Cavite. It is There was thus an implied trust constituted in her favor. Art.
the ownership of some of these properties that is in question in this 1449 of the Civil Code states:
case.
There is also an implied trust when a donation is made to a person
It appears that after the death of Maximino, Sr., Romeo filed an but it appears that although the legal estate is transmitted to the
intestate case in the Court of First Instance of Cavite and was donee, he nevertheless is either to have no beneficial interest or
appointed administrator of his father’s estate. In the course of the only a part thereof.
intestate proceedings, Romeo discovered that his parents had
executed several deeds of sale conveying a number of real properties
There being an implied trust, the lots in question are therefore
in favor of his sister, Natividad. One of the deeds involved six (6) lots
subject to collation in accordance with Art. 1061 which states:
in Quezon City which were allegedly sold by Maximino, Sr., with the
consent of Aurea, to Natividad on January 29, 1970 for the total
amount of ₱47,800.00. Every compulsory heir, who succeeds with other compulsory heirs,
must bring into the mass of the estate any property or right which
he may have received from the decedent, during the lifetime of the
By virtue of this deed, transfer certificates of title were issued to
latter, by way of donation, or any other gratuitous title, in order that
Natividad, to wit: TCT No. 162738 (Lot 3-B),3 TCT No. 162739 (Lot
it may be computed in the determination of the legitime of each
3),4 TCT No. 162735 (Lot 10),5 TCT No. 162736 (Lot 11),6 and TCT No.
heir, and in the account of the partition.
162737 (Lots 13 and 14),7 all of the Register of Deeds of Quezon City.

Adaza vs. Court of Appeals

On June 15, 1988, Romeo in turn filed, on behalf of the estate
G.R. No. 47354, March 21, 1989
of Maximino, Sr., the present case for annulment of sale with
damages against Natividad and Maximino, Jr. The case was filed
in the Regional Trial Court of Quezon City, where it was docketed as FACTS: In the lawful wedlock of Victor Adaza and Rosario Gonzales
Civil Case No. 88-58.11 Romeo sought the declaration of nullity of the were born six (6) children: petitioner Horacio, Homero, Demosthenes,
sale made on January 29, 1970 to Natividad and that made on July respondent Violeta, Teresita and Victor, Jr.
31, 1982 to Maximino, Jr. on the ground that both sales were void for
lack of consideration. The head of the family, Victor Adaza, Sr., died in 1956, while the wife
died in 1971. During his lifetime, Victor Adaza, Sr. executed a Deed
Romeo presented evidence to show that Maximino and Aurea of Donation dated 10 June 1953, covering the parcel of land subject
Nazareno never intended to sell the six lots to Natividad and matter of this case, with an area of 13.3618 hectares, located at
that Natividad was only to hold the said lots in trust for her Sinonok, Dapitan City, Zamboanga del Norte, in favor of respondent
siblings. He presented the Deed of Partition and Distribution dated Violeta, then still single. The donation was accepted in the same
June 28, 1962 executed by Maximino Sr. and Aurea and duly signed instrument, which both donor and donee acknowledged before Notary
by all of their children, except Jose, who was then abroad and was Public. As a result thereof, on 26 January 1960, an Original Certificate
represented by their mother, Aurea. of Title No. P-11111 was issued in her name. She declared the
property in her name under Tax Declaration No. 9808.

Romeo further testified that, although the deeds of sale

executed by his parents in their favor stated that the sale was From Davao Oriental, Horacio came back to Dapitan City for the town
for a consideration, they never really paid any amount for the fiesta. He invited respondent Violeta and the other brothers and sister
supposed sale. The transfer was made in this manner in order to for a family gathering in his house. There, Horacio asked Violeta to
avoid the payment of inheritance taxes. sign a Deed of Waiver which had been prepared in respect of the
property in Sinonok donated by their father Victor Adaza, Sr. This
Deed stated that the Sinonok property was owned in common by
Natividad and Maximino, Jr. claimed that the Deed of Violeta and her brother Horacio G. Adaza, even though the certificate
Partition and Distribution executed in 1962 was not really of title had been issued in her name only. Violeta signed this Deed of
carried out. Instead, in December of 1969, their parents Waiver: the Deed was also signed by petitioner Horacio and Homero
offered to sell to them the six lots in Quezon City, i.e., Lots 3, Adaza as witnesses. The Deed of Waiver provides:
3-B, 10, 11, 13 and 14. However, it was only Natividad who bought
the six properties because she was the only one financially able to do
so. Natividad said she sold Lots 13 and 14 to Ros-Alva Marketing NOW, THEREFORE, for and in consideration of the premises
Corp.19 and Lot 3-B to Maximino, Jr. for ₱175,000.00. aforestated, I do hereby WAIVE, TRANSFER, RELINQUISH
AND CONVEY unto the said HORACIO G. ADAZA, of legal
age, married to Felicidad Marundan, Filipino, and a resident
On August 10, 1992, the trial court rendered a decision declaring the of Dapitan City, all my rights, interest, participation and
nullity of the Deed of Sale dated January 29, 1970. The trial court also ownership over the ONE-HALF (1/2) PORTION of the
declared that Natividad shall hold the rest in trust for Jose Nazareno aforesaid property, together with all the improvements,
to whom the same had been adjudicated. Said decision was affirmed found and existing over the said one-half.
with modifications by the appellate court.
A few months later, or on 12 October 1971, respondent Violeta joined
ISSUE: Whether or not there was implied trust. by her husband, Lino Amor, filed a complaint (docketed as Civil Case
No. 2213) for annulment of the Deed of Waiver and for damages,
HELD: Yes. against petitioner spouses Horacio and Felisa M. Adaza. In this
Complaint, Violeta and her husband alleged, among other things: (1)
As Romeo admitted, no consideration was paid by him to his parents that she was absolute owner of the land in question by virtue of the
for the Deed of Sale. Therefore, the sale was void for having been unconditional donation executed by their father Victor Adaza, Sr. and
simulated. Natividad never acquired ownership over the property that she had signed the Deed of Waiver because of petitioner
because the Deed of Sale in her favor is also void for being without Horacio's fraud, misrepresentation and undue influence.
consideration and title to Lot 3 cannot be issued in her name.
Adaza spouses contended that petitioner Horacio and his sister
Nonetheless, it cannot be denied that Maximino, Sr. intended to give respondent Violeta were co-owners of the disputed land although the
the six Quezon City lots to Natividad. As Romeo testified, their same had been registered under Violeta's name alone.
parents executed the Deed of Sale in favor of Natividad because the
latter was the only "female and the only unmarried member of the
family."34 She was thus entrusted with the real properties in behalf The trial court declared that the Deed was valid and binding.The Court
of her siblings. As she herself admitted, she intended to convey Lots of Appeals reversed the decision of the trial court. The Court of
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52
Appeals agreed with the finding of the trial court that the Deed of Horacio G. Adaza, although the certificate of title was issued only in
Waiver had been signed voluntarily, if reluctantly, by Violeta. The [her] name." We believe and so hold that this statement is an
appellate court, however, held that such Deed was without cause or admission that she held half of the land in trust for petitioner Horacio.
consideration, because the land had been, in the view of the appellate The execution of the Deed of Donation of 10 June 1953 by respondent
court, unconditionally donated to Violeta alone. Violeta's father created an implied trust in favor of Violeta's brother,
petitioner Horacio Adaza, in respect of half of the property
donated.15 Article 1449 of the Civil Code is directly in point:
ISSUE: Whether or not there was implied trust.

HELD: Yes. Art. 1449. There is also an implied trust when a donation is
made to a person but it appears that although the legal
estate is transmitted to the donee, he nevertheless is either
Since Violeta traced her title to and based her claim of ownership upon
to have no beneficial interest or only a part thereof.
the Deed of Donation executed by their father, it is necessary to
examine this Deed of Donation. That Deed of Donation is noteworthy
for its inclusion of a paragraph that was crossed-out. The crossed-out
provision reads:
Article 1450
Nakpil vs. Intermediate Appellate Court
That the donee shall share one-half (1/2) of the entire G.R. No. 74449, August 20, 1993
property with one of her brothers or sisters after the death
of the donor. FACTS: On 21 March 1979, petitioner instituted an action for
reconveyance with damages for breach of trust before the Regional
Trial Court of Baguio City against respondents Carlos "Charlie" Valdes
The next succeeding paragraph reads thus:
and Caval Realty Corporation. She alleged in her complaint that her
husband Jose "Pinggoy" Nakpil prior to his death had requested
That the donee do [sic] hereby receive and accept this gift Valdes to purchase Pulong Maulap and thereafter register the sale
and donation made in her favor by the donor, not subject and hold the title thereto in trust for him (Pinggoy Nakpil), which
to any condition, and do hereby express her appreciation respondent Valdes did. But after her husband's death, Valdes
and gratefulness for the kindness and generosity of the concealed and suppressed all information regarding the trust
donor. (Rollo, p. 50). agreement; instead, he transferred Pulong Maulap in the name of
respondent Caval Realty Corporation, which is 99.7% owned by him,
in exchange for 1,500 shares of stock.
Petitioner Horacio testified before the trial court that it had been the
intention of their father to donate the parcel of land covered by the
Deed of Donation to him and to Violeta, as shown by the above Respondent Valdes, on the other hand, denied the existence of any
provision which was ultimately crossed-out. Petitioner Horacio further trust agreement over Pulong Maulap. He averred that he bought the
testified that he himself had crossed-out the aforementioned summer residence for himself with his own funds and without any
provision, with the consent of his father, to make it appear that the participation of the late Nakpil; neither was it bought in trust for the
land was being donated solely to Violeta, in order to facilitate the latter. Valdes claims that he only informed Pinggoy Nakpil of the
issuance of the title in her name. Clearly, in itself, the crossing out of acquisition of Pulong Maulap, and Pinggoy merely showed interest in
the above-quoted paragraph was at least an ambiguous act. The buying the property if he could have the money. Meanwhile,
Court of Appeals took what appears to us as a too literal view of the considering their avowed friendship, he (Valdes) offered the usufruct
matter, that is, that the effect of the crossing-out of that paragraph of the property to the Nakpils who in turn agreed to shoulder its
was precisely to render the donation a simple and unconditional one, maintenance expenses, real estate taxes, fire insurance premiums
such that respondent Violeta was not obliged to share the property and servicing of interest on the mortgage obligation constituted on
with her brother Horacio. the property.

We take a different view. We believe that the critical question relates From the records it appears that the Valdeses bought Pulong
to the reality of the intent ascribed to the donor and father of Horacio Maulap for P150,000.00 with respondent Valdes giving a
and Violeta to make the two (2) co-owners of the property in question. downpayment of P50,000.00 and assuming the vendors' mortgage
Assuming such an intent is sufficiently shown, it must be respected obligation of P100,000.00 with the Philippine National Bank (PNB),
and implemented through whatever medium is available under our which he reduced to P75,000.00 by paying P25,000.00. On 12 July
civil law. 1965, a deed of sale was executed and Transfer Certificate of Title
No. 10247 was thereafter issued in the name of Valdes. As agreed, in
the early part of May 1965, even before the execution of the deed of
We turn to the question of the intent of the donor. Petitioner Horacio
sale in favor of the Valdeses, the Nakpils moved in and stayed
claimed that that intent was precisely to make both Violeta and
at Pulong Maulap even until after Pinggoy's death.
himself co-owners of the land then being donated to Violeta. Put a
little differently, according to petitioner Horacio, though respondent
Violeta alone was to be the registered owner, she was to share the Meanwhile, in order to facilitate the servicing of the mortgage
land donated by the father with Horacio on an equal sharing basis. obligation over Pulong Maulap, the loan was transferred to the First
We think this intent is evidenced, firstly, by the Deed of Waiver United Bank (FUB) where Pinggoy Nakpil was then a vice-president.
executed by Violeta and quoted in full earlier. The Deed of Waiver is Valdes borrowed P75,000.00 from FUB with which he paid PNB, and
important because there Violeta acknowledged that she owned the at the same time constituted in favor of FUB a mortgage over Pulong
land in common with her brother Horacio although the certificate of Maulap. He also borrowed P65,000.00 from FUB to finance the repair
title bore only her name. As noted earlier, respondent Violeta strove and renovation of Pulong Maulap.
mightily to convince both the trial court and the Court of Appeals that
she had signed the Deed of Waiver by reason of fraud,
Petitioner submits that respondent Valdes had recognized her late
misrepresentation and undue influence exercised upon her by her
husband's ownership of Pulong Maulap on the basis among others of
brother Horacio. However, both the trial court and the Court of
the following documents: (a) "Exh. "H," a letter dated 28 March 1969
Appeals reached the conclusion that Violeta had in fact voluntarily
sent by Carlos J. Valdes & Co., an accounting firm owned by
signed the Deed of Waiver, even though she had done so with
respondent Valdes, to the City Treasurer of Baguio remitting to the
reluctance. The Deed of Waiver had been signed by Violeta in the
latter, "[o]n behalf of (our) their clients, Mr. Jose Nakpil . . . the
presence of Horacio and of her other brothers Homero Adaza and
following FUB checks for the payment of their 1969 real estate taxes"
Victor Adaza, Jr. and her sister Teresita Adaza.
on Pulong Maulap; (b) Exh. "J," letter of Valdes to petitioner dated 24
August 1973 with the latter's handwritten conforme, date and
All the above circumstances lead this Court to the conclusion which signature —
Violeta had admitted in the Deed of Waiver, that is, that the "property
[here involved] is owned in common by [her] and [her] brother,
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
53
Dear Nena, From the evidence adduced, it may be concluded that respondent
Valdes, using his own funds, purchased Pulong Maulap in behalf of
the late Nakpil. This is based on the letters to petitioner of Valdes
At the First United Bank, there are two loans in my name:
where he categorically admitted that "[b]oth of these loans, while in
my (respondent Valdes) name, were obtained by Pinggoy (the late
PN# ERB-893/73 for P65,000.00 Nakpil) for his person, 10 and that the "P75,000.00 initially advanced
PN # 644/72 for P75,000.00 for the Moran property still remains unpaid. 11

As we agreed, I will take over the total loan of P140,000.00 It is evident from these letters that while the balance of P75,000.00
and pay all of the interests due on the notes. It is likewise on the mortgage of the vendors with PNB was liquidated from the
understood between us that you will continue occupying proceeds of a loan respondent obtained from FUB, such loan was
the premises at Moran St., free of any encumbrance or actually secured by the late Nakpil by merely using Valdes' name.
payment, for 5 years starting August 1, 1973. Such is also the case with respect to another FUB loan amounting to
P65,000.00, the proceeds of which were used to finance the repair
Sincerely, and renovation of Pulong Maulap. And, while the downpayment of
P50,000.00 and the partial payment of P25,000.00 to PNB came from
the personal funds of Valdes, he considered them as advances to the
(SGD.) CHARLIE JV, late Nakpil. Otherwise, Valdes would never have deemed the amount
as "unpaid" in his letter to petitioner of 17 September 1974.
and, (c) Exh. "L," another letter of Valdes to petitioner dated 17
September 1974 — The letter of Valdes to the City Treasurer of Baguio made while
remitting payment of real estate taxes is also enlightening. It provided
Dear Comadre, therein that the payment being tendered was "[o]n behalf" of the
Nakpil's, 12 which is an express recognition of the implied trust.

Our records show that the P75,000.00 initially advanced for

the Moran property still remains unpaid. Consequently, respondent Valdes is estopped from claiming that he
bought Pulong Maulap for himself, and not merely in trust for the late
Nakpil, as this contention is belied by the facts. Hence, we rule that
Under these circumstances, you could add to the present constructive trust under Art. 1450 of the New Civil Code existed
purchase price, P75,000.00 plus interest therein at 12% for between the parties.
5 years or:

However, petitioner cannot as yet redeem and compel conveyance of

The records likewise show that on 13 February 1978, Valdes the property. For, Valdes must still be reimbursed for the advances he
assigned Pulong Maulap to Caval Realty Corporation, for which made on the disputed property, such reimbursement being a conditio
Transfer Certificate of Title No. T-28484 was issued on 23 March 1978. sine qua non for compelling conveyance under Art. 1450.
Later, after petitioner allegedly received a P2,000,000.00— offer
for Pulong Maulap from Pasay City Mayor Pablo Cuneta, she wrote
Valdes demanding a reconveyance to enable her to effect the sale and The period within which to compel conveyance of Pulong Maulap is
reimburse the latter from the proceeds thereof for the advances he not imprescriptible. The rule is well-settled that an action for
made. On 30 December 1978, Valdes allegedly told petitioner that he reconveyance based on an implied or constructive trust prescibes in
could not execute the deed of conveyance because Pulong ten (10) years. 13 But, in the case before us, petitioner could still
Maulap was his and he had no intention of selling it. compel conveyance of the disputed property from respondent
provided the former reimburses the latter for all his expenses. After
all, Valdes never repudiated the constructive trust during the lifetime
On 7 July 1983, the Regional Trial Court 1 rendered a decision holding of the late Jose Nakpil. On the contrary, he expressly recognized it.
that a trust relationship existed. Nevertheless, the trial court The prescriptive period therefore did not begin to run until after he
dismissed the petition for reconveyance on the ground that repudiated the trust. 14 And such repudiation came when Valdes
petitioner, by conforming to Exh. "J" and acquiescing with Exh. "L," excluded Pulong Maulap from the list of properties of the late Jose
the very documents she presented to prove the existence of a trust Nakpil submitted to the intestate court 15 in 1973. Even then, the
relationship, has waived her right over Pulong Maulap 3 present action for conveyance was filed in 1979 or well within the ten-
years period.
The appellate court affirmed the trial court.
Article 1451
ISSUE: Whether Art. 1450 of the Civil Code applies; and, if it so
applies, whether petitioner can still compel reconveyance of Pulong
Maulap from respondent Valdes. Ancog vs. Court of Appeals
G.R. No. 112260, June 30, 1997
HELD: Yes on BOTH.
FACTS: The land, with improvements thereon, was formerly the
Implied trusts, which may either be resulting or constructive, are conjugal property of the spouses Gregorio Yap and Rosario Diez. In
those which, without being express, are deducible from the nature of 1946, Gregorio Yap died, leaving his wife, private respondent Rosario
the transaction as matters of intent, or which are superinduced on the Diez, and children, petitioners Jovita Yap Ancog and Gregorio Yap, Jr.,
transaction by operation of law as matter of equity, independently of and private respondent Caridad Yap as his heirs.
the particular intention of the parties. 8 Article 1450, which petitioner
invokes in the case at bar, is an illustration of an implied trust which In 1954 and again 1958, Rosario Diez obtained loans from the
is constructive. 9 Bank of Calape, secured by a mortgage on the disputed land,
which was annotated on its Original Certificate of Title No.
Article 1450 presupposes a situation where a person, using his own 622. When Rosario Diez applied again for a loan to the bank, offering
funds, purchases a certain piece of land in behalf of another who, in the land in question as security, the bank's lawyer, Atty. Narciso de la
the meantime, may not have sufficient funds to purchase the land. Serna, suggested that she submit an extrajudicial settlement covering
The property is then transferred in the name of the trustee, the person the disputed land as a means of facilitating the approval of her
who paid for the land, until he is reimbursed by the beneficiary, the application. The suggestion was accepted and on April 4, 1961, Atty.
person for whom the land is purchased. It is only after the beneficiary de la Serna prepared an extrajudicial settlement, which the heirs, with
reimburses the trustee of the purchase price that the former can the exception of petitioner Gregorio Yap, Jr., then only 15 years old,
compel conveyance of the purchased property from the latter. signed. The document was notarized by Atty. de la Serna on April 12,
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
54
1961. As a result, OCT No. 622 was cancelled and Transfer Certificate A cestui que trust may make a claim under a resulting trust within 10
of Title No. 3447 (T-2411) was issued on April 13, 1961. On April 14, years from the time the trust is repudiated. 15 Although the
1961, upon the execution of a real estate mortgage on the land, the registration of the land in private respondent Diez's name operated as
loan was approved by the bank. a constructive notice of her claim of ownership, it cannot be taken as
an act of repudiation adverse to petitioner Gregorio Yap, Jr.'s claim,
whose share in the property was precisely not included by the parties
Rosario Diez exercised rights of ownership over the land. In 1985, she
in the partition. Indeed, it has not been shown whether he had been
brought an ejectment suit against petitioner Jovita Yap Ancog's
informed of her exclusive claim over the entire property before 1985
husband and son to evict them from the ground floor of the house
when he was notified by petitioner Jovita Yap Ancog of their mother's
built on the land for failure to pay rent. Shortly thereafter, petitioner
plan to sell the property.
Jovita Ancog learned that private respondent Rosario Diez had offered
the land for sale.
This Court has ruled that for prescription to run in favor of the trustee,
the trust must be repudiated by unequivocal acts made known to
Petitioner Ancog immediately informed her younger brother,
the cestui que trust and proved by clear and conclusive evidence.
petitioner Gregorio Yap, Jr., who was living in Davao, of their mother's
Furthermore, the rule that the prescriptive period should be counted
plan to sell the land. On June 6, 1985, they filed this action for
from the date of issuance of the Torrens certificate of title applies only
partition in the Regional Trial Court of Bohol where it was docketed
to the remedy of reconveyance under the Property Registration
as Civil Case No. 3094. As private respondent Caridad Yap was
Decree. 17 Since the action brought by petitioner Yap to claim his
unwilling to join in the action against their mother, Caridad was
share was brought shortly after he was informed by Jovita Ancog of
impleaded as a defendant.
their mother's effort to sell the property, Gregorio Yap, Jr.'s claim
cannot be considered barred either by prescription or by laches.
Petitioners alleged that the extrajudicial instrument was simulated and
therefore void. They claimed that in signing the instrument they did
not really intend to convey their interests in the property to their Article 1456
mother, but only to enable her to obtain a loan on the security of the
land to cover expenses for Caridad's school fees and for household Brito, Sr. vs. Dianala, et. al.
repairs. G.R. No. 171717, December 15, 2010

The trial court rendered judgment dismissing petitioners' action. It FACTS: Subject of the present petition is a parcel of land located
dismissed petitioners' claim that the extrajudicial settlement was at Barrio Sicaba, Cadiz City. The said tract of land is a portion of
simulated and held it was voluntarily signed by the parties. On appeal, Lot No. 1536-B, formerly known as Lot No. 591-B, originally owned
the Court of Appeals upheld the validity of the extrajudicial settlement by a certain Esteban Dichimo and his wife, Eufemia Dianala, both of
and sustained the trial court's dismissal of the case. The appellate whom are already deceased.
court emphasized that the extrajudicial settlement could not have
been simulated in order to obtain a loan, as the new loan was merely
On September 27, 1976, Margarita Dichimo, assisted by her husband,
"in addition to" a previous one which private respondent Diez had
Ramon Brito, Sr., et. al. filed a Complaint for Recovery of Possession
been able to obtain even without an extrajudicial settlement.
and Damages with the then Court of First Instance (now Regional Trial
Court) of Negros Occidental, against a certain Jose Maria Golez. The
ISSUE: Whether or not there was implied trust. case was docketed as Civil Case No. 12887.

HELD: Yes.
Petitioner's wife, Margarita, together with Bienvenido and Francisco,
alleged that they are the heirs of a certain Vicente Dichimo, while
We hold that both the trial court and the Court of Appeals correctly
Edito, Maria, Herminia, Leonora, Felicito and Merlinda claimed to be
acted in upholding the extrajudicial settlement but erred in ruling that
the heirs of one Eusebio Dichimo; that Vicente and Eusebio are
petitioner Gregorio Yap, Jr. was barred by laches from recovering his
the only heirs of Esteban and Eufemia; that Esteban and Eufemia
share in the property in question.
died intestate and upon their death Vicente and Eusebio, as
compulsory heirs, inherited Lot No. 1536-B; that, in turn, Vicente and
We hold, however, that the Court of Appeals erred in ruling that the
Eusebio, and their respective spouses, also died intestate leaving their
claim of petitioner Gregorio Yap, Jr. was barred by laches. In
pro indiviso shares of Lot No. 1536-B as part of the inheritance of the
accordance with Rule 74, §1 of the Rules of Court, as he did not take
complainants in Civil Case No. 12887.
part in the partition, he is not bound by the settlement. 10 It is
uncontroverted that, at the time the extrajudicial settlement was
executed, Gregorio Yap, Jr. was a minor. For this reason, he was not Subsequently, the parties in Civil Case No. 12887 agreed to enter into
included or even informed of the partition. a Compromise Agreement wherein Lot No. 1536-B was divided
between Jose Maria Golez, on one hand, and the heirs of Vicente,
namely: Margarita, Bienvenido, and Francisco, on the other. It was
Instead, the registration of the land in Rosario Diez's name created
stated in the said agreement that the heirs of Eusebio had sold their
an implied trust in his favor by analogy to Art. 1451 of the
share in the said lot to the mother of Golez. Thus, on September 9,
Civil Code, which provides:
1998, the Regional Trial Court (RTC) of Bacolod City, Branch 45
rendered a decision approving the said Compromise Agreement.
When land passes by succession to any person and he
causes the legal title to be put in the name of another, a
Thereafter, TCT No. T-12561 was issued by the Register of Deeds of
trust is established by implication of law for the benefit of
Cadiz City in the name of Margarita, Bienvenido and Francisco.
the true owner.

On January 18, 1999, herein petitioner and his co-heirs filed another
In the case of O'Laco v. Co Cho Chit, 11 Art. 1451 was held as creating
Complaint for Recovery of Possession and Damages, this time against
a resulting trust, which is founded on the presumed intention of the
herein respondents. The case, filed with the RTC of Cadiz City, Branch
parties. As a general rule, it arises where such may be reasonably
60, was docketed as Civil Case No. 548-C.
presumed to be the intention of the parties, as determined from the
facts and circumstances existing at the time of the transaction out of
which it is sought to be established. 12 In this case, the records Herein respondents, on the other hand, filed with the same court, on
disclose that the intention of the parties to the extrajudicial settlement August 18, 1999, a Complaint for Reconveyance and Damages against
was to establish a trust in favor of petitioner Yap, Jr. to the extent of petitioner and his co-heirs. The case was docketed as Civil Case No.
his share. Rosario Diez testified that she did not claim the entire 588-C. In their complaint for reconveyance and damages,
property, 13 while Atty. de la Serna added that the partition only respondents alleged that petitioner and his co-heirs acquired the
involved the shares of the three participants.
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
55
subject property by means of fraud. Petitioners countered that the An action for reconveyance has its basis in Section 53, paragraph 3 of
action already prescribed. Presidential Decree No. 1529, which provides:

On June 29, 2000, the RTC issued Joint Orders, dismissing the civil In all cases of registration procured by fraud, the owner may pursue
cases filed by petitioners and private respondents. On appeal, the all his legal and equitable remedies against the parties to such fraud
Court of Appeals reversed the trial court. without prejudice, however, to the rights of any innocent holder of
the decree of registration on the original petition or application, x x x.
ISSUE: Whether the action by respondents for reconveyance has
been barred by prescription. This provision should be read in conjunction with Article 1456 of the
Civil Code, x x x
HELD: No.
xxxx
Article 1456 of the Civil Code provides that a person acquiring
property through fraud becomes, by operation of law, a trustee of an
implied trust for the benefit of the real owner of the property. An The law thereby creates the obligation of the trustee to reconvey the
action for reconveyance based on an implied trust prescribes in ten property and the title thereto in favor of the true owner. Correlating
years, the reckoning point of which is the date of registration of the Section 53, paragraph 3 of Presidential Decree No. 1529 and Article
deed or the date of issuance of the certificate of title over the 1456 of the Civil Code with Article 1144(2) of the Civil Code, supra,
property.9 Thus, in Caro v. Court of Appeals,10 this Court held as the prescriptive period for the reconveyance of fraudulently registered
follows: real property is ten (10) years reckoned from the date of the issuance
of the certificate of title. x x x11
x x x The case of Liwalug Amerol, et al. v. Molok Bagumbaran, G.R.
No. L-33261, September 30, 1987,154 SCRA 396, illuminated what In the instant case, TCT No. T-12561 was obtained by petitioner and
used to be a gray area on the prescriptive period for an action to his co-heirs on September 28, 1990, while respondents filed their
reconvey the title to real property and, corollarily, its point of complaint for reconveyance on August 18, 1999. Hence, it is clear that
reference: the ten-year prescriptive period has not yet expired.

x x x It must be remembered that before August 30, 1950, the date The Court, likewise, does not agree with petitioner's contention that
of the effectivity of the new Civil Code, the old Code of Civil Procedure respondents are guilty of laches and are already estopped from
(Act No. 190) governed prescription. It provided: questioning the decision of the RTC in Civil Case No. 12887 on the
ground that they slept on their rights and allowed the said decision to
become final.
SEC. 43. Other civil actions; how limited.- Civil actions other than for
the recovery of real property can only be brought within the following
periods after the right of action accrues: In the first place, respondents cannot be faulted for not appealing the
decision of the RTC in Civil Case No. 12887 simply because they are
no longer parties to the case and, as such, have no personality to
xxx xxx xxx
assail the said judgment.

3. Within four years: xxx An action for relief on the ground of fraud,
Secondly, respondents' act of filing their action for reconveyance
but the right of action in such case shall not be deemed to have
within the ten-year prescriptive period does not constitute an
accrued until the discovery of the fraud;
unreasonable delay in asserting their right. The Court has ruled that,
unless reasons of inequitable proportions are adduced, a delay within
xxx xxx xxx the prescriptive period is sanctioned by law and is not considered to
be a delay that would bar relief.12 Laches is recourse in
equity.13 Equity, however, is applied only in the absence, never in
In contrast, under the present Civil Code, we find that just as an
contravention, of statutory law.
implied or constructive trust is an offspring of the law (Art. 1456, Civil
Code), so is the corresponding obligation to reconvey the property
and the title thereto in favor of the true owner. In this context, and Heirs of Reterta vs. Spouses Mores
vis-a-vis prescription, Article 1144 of the Civil Code is applicable. G.R. No. 159941, August 17, 2011

FACTS: On May 2, 2000, the petitioners commenced an action

Article 1144. The following actions must be brought within ten years for quieting of title and reconveyance in the RTC in Trece
from the time the right of action accrues: Martires City (Civil Case No. TM-983),2 averring that they were
the true and real owners of the parcel of land (the land) situated in
(1) Upon a written contract; Trez Cruzes, Tanza, Cavite, containing an area of 47,708 square
meters, having inherited the land from their father who had died on
July 11, 1983; that their late father had been the grantee of the land
(2) Upon an obligation created by law; by virtue of his occupation and cultivation; that their late father and
his predecessors in interest had been in open, exclusive, notorious,
xxx xxx x x x (Italics supplied.) and continuous possession of the land for more than 30 years; that
they had discovered in 1999 an affidavit dated March 1, 1966 that
their father had purportedly executed whereby he had waived his
An action for reconveyance based on an implied or constructive trust
rights, interests, and participation in the land; that by virtue of the
must perforce prescribe in ten years and not otherwise. A long line of
affidavit, Sales Certificate No. V-769 had been issued in favor of
decisions of this Court, and of very recent vintage at that, illustrates
respondent Lorenzo Mores by the then Department of Agriculture and
this rule. Undoubtedly, it is now well settled that an action for
Natural Resources; and that Transfer Certificate of Title No. T-64071
reconveyance based on an implied or constructive trust prescribes in
had later issued to the respondents.
ten years from the issuance of the Torrens title over the property. It
must be stressed, at this juncture, that article 1144 and article 1456,
are new provisions. They have no counterparts in the old Civil Code The petitioners’ complaint – self-styled as being for the "quieting of
or in the old Code of Civil Procedure, the latter being then resorted to title and reconveyance, declaration of nullity of affidavit & Sales
as legal basis of the four-year prescriptive period for an action for Certificate, reconveyance and damages" – would challenge the
reconveyance of title of real property acquired under false pretenses. efficacy of the respondents’ certificate of title under the theory that
there had been no valid transfer or assignment from the petitioners’
predecessor in interest to the respondents of the rights or interests in
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the land due to the affidavit assigning such rights and interests being the spouses Belen, their surviving heirs Brigida Sescon Belen and
a forgery and procured by fraud. Maria Lina Belen executed an extra-judicial settlement with partition
and sale in favor of private respondent Vilma Valencia-Minor, the
present possessor of the subject property.
On October 29, 2001, the RTC granted the motion to dismiss. Later,
the appellate court dismissed the appeal.
On June 20, 1979, herein private respondent Minor filed with the
then Court of First Instance of Pagadian City a "PETITION FOR
ISSUE: Whether or not reconveyance is proper.
CANCELLATION OF MEMORANDUM OF ENCUMBRANCE APPEARING
IN TCT NO. T-5,427 OF THE REGISTRY OF DEEDS OF ZAMBOANGA
HELD: Yes.
DEL SUR," which was docketed as SPL Case No. 1861.3 On July 31,
2000, the Regional Trial Court (RTC) granted Minor’s prayer to allow
The petitioners’ cause of action for reconveyance has support in the Register of Deeds to have the title to the subject property
jurisprudence bearing upon the manner by which to establish a right transferred to her name.
in a piece of friar land. According to Arayata v. Joya,17 in order that a
transfer of the rights of a holder of a certificate of sale of friar lands
In the meantime, on August 20, 1998, petitioners filed a Complaint
may be legally effective, it is necessary that a formal certificate of
before the RTC of San Miguel, Zamboanga del Sur for the
transfer be drawn up and submitted to the Chief of the Bureau of
"CANCELLATION OF TRANSFER CERTIFICATE OF TITLE NO. T-5,427,
Public Lands for his approval and registration. The law authorizes no
RECONVEYANCE, WITH ACCOUNTING, RECEIVERSHIP AND
other way of transferring the rights of a holder of a certificate of sale
APPLICATION FOR A WRIT OF PRELIMINARY PROHIBITORY
of friar lands. In other words, where a person considered as a grantee
INJUNCTION PLUS DAMAGES." The Complaint was docketed as Civil
of a piece of friar land transfers his rights thereon, such transfer must
Case No. 98-021.4
conform to certain requirements of the law. Under Director of Lands
v. Rizal,18 the purchaser in the sale of friar lands under Act No. 1120
is already treated by law as the actual owner of the lot purchased Private respondent Minor filed an Omnibus Motion to Dismiss Civil
even before the payment of the full payment price and before the Case No. 98-021 on the grounds of forum shopping and litis
execution of the final deed of conveyance, subject to the obligation to pendentia. On May 7, 2001, the RTC issued an Order dismissing Civil
pay in full the purchase price, the role or position of the Government Case No. 98-021 on the ground of forum shopping. On appeal, the
becoming that of a mere lien holder or mortgagee.19 appellate court ruled that there was no forum shopping but dismissed
the petition on the ground of prescription and laches.
Thus, pursuant to Section 16 of Act No. 1120,20 had grantee Teofilo
ISSUE: Whether the petitioners’ case must be dismissed on the
Reterta perfected his title, the petitioners as his heirs would have
grounds of prescription and laches.
succeeded him and taken title from him upon his death. By law,
therefore, should the execution of the deed in favor of the
HELD: Yes.
respondents be held invalid, the interests of Teofilo Reterta should
descend to the petitioners and the deed should issue in their favor.
Adding significance to the petitioners’ claim was their allegation in the In conclusion, petitioners’ cause of action has already prescribed and
complaint that they were in possession of the land. Moreover, as now heavily infirmed with laches.16
alleged in the petitioners’ opposition to the motion to dismiss of the
respondents, Teofilo Reterta had partially paid the price of the land.21
Petitioners claim that although the complaint was captioned for
"CANCELLATION OF TRANSFER CERTIFICATE OF TITLE NO. T-
Given the foregoing, the petitioners’ complaint made out a good case 5,427, RECONVEYANCE, WITH ACCOUNTING,
for reconveyance or reversion, and its allegations, if duly established, RECEIVERSHIP, AND APPLICATION FOR A WRIT OF
might well warrant the reconveyance of the land from the respondents PRELIMINARY PROHIBITORY INJUNCTION PLUS DAMAGES,"
to the petitioners. It did not matter that the respondents already held the complaint is substantially in the nature of an action to quiet title
a certificate of title in their names. In essence, an action for which allegedly does not prescribe. Petitioners also allege that the
reconveyance respects the incontrovertibility of the decree of cases cited by the Court of Appeals in ruling that prescription has set
registration but seeks the transfer of the property to its rightful and in, particularly that of Declaro v. Court of Appeals,17 which in turn cites
legal owner on the ground of its having been fraudulently or Tenio-Obsequio v. Court of Appeals,18 are inapplicable to the case at
mistakenly registered in another person’s name. There is no special bar since neither fraud nor forgery was attendant in said cases.
ground for an action for reconveyance, for it is enough that the
aggrieved party asserts a legal claim in the property superior to the
As regards petitioners’ claim that the complaint in Civil Case No. 98-
claim of the registered owner, and that the property has not yet
021 is really one of quieting of title which does not prescribe, it
passed to the hands of an innocent purchaser for value.22 On this
appears that petitioners are referring to the doctrine laid down in the
score, it is also worthy to stress that the title of a piece of a friar land
often-cited case of Heirs of Jose Olviga v. Court of Appeals,19 wherein
obtained by a grantee from the Government without conforming with
we held:
the requirements set by the law may be assailed and nullified.

With regard to the issue of prescription, this Court has ruled

Heirs of Valientes vs. Ramas, et. al. a number of times before that an action for reconveyance of
G.R. No. 157852, December 15, 2010 a parcel of land based on implied or constructive trust
prescribes in ten years, the point of reference being the date
FACTS: Petitioners claim that they are the heirs of Domingo Valientes of registration of the deed or the date of the issuance of the
who, before his death, was the owner of a parcel of land in Gabay, certificate of title over the property (Vda. de Portugal vs. IAC,
Margosatubig, Zamboanga del Sur then covered by Original Certificate 159 SCRA 178). But this rule applies only when the plaintiff
of Title (OCT) No. P-18,208 of the Register of Deeds of Zamboanga is not in possession of the property, since if a person claiming
del Sur. In 1939, Domingo Valientes mortgaged the subject property to be the owner thereof is in actual possession of the
to secure his loan to the spouses Leon Belen and Brigida Sescon property, the right to seek reconveyance, which in effect
(spouses Belen). In the 1950s, the Valientes family purportedly seeks to quiet title to the property, does not prescribe.20
attempted, but failed, to retrieve the subject property from the
spouses Belen. Through an allegedly forged document captioned
VENTA DEFINITIVA purporting to be a deed of sale of the subject The cause of action of petitioners in Civil Case No. 98-021, wherein
property between Domingo Valientes and the spouses Belen, the they claim that private respondent Minor’s predecessor-in-interest
latter obtained Transfer Certificate of Title (TCT) No. T-5,427 in their acquired the subject property by forgery, can indeed be considered
name. On February 28, 1970, Maria Valientes Bucoy and as that of enforcing an implied trust. In particular, Article 1456 of the
Vicente Valientes, legitimate children of the late Domingo Valientes, Civil Code provides:
had their Affidavit of Adverse Claim2 duly entered in the Memorandum
of Encumbrances at the back of TCT No. T-5,427. Upon the death of
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57
Art. 1456. If property is acquired through mistake or fraud, the person property, in this case the title thereof, which has been wrongfully or
obtaining it is, by force of law, considered a trustee of an implied trust erroneously registered in another person's name, to its rightful and
for the benefit of the person from whom the property comes. legal owner, or to one with a better right. This is what reconveyance
is all about.1avvphi1
However, the Court made a clear distinction in Olviga: when the
plaintiff in such action is not in possession of the subject Yet, the right to seek reconveyance based on an implied or
property, the action prescribes in ten years from the date of constructive trust is not absolute nor is it imprescriptible. An action
registration of the deed or the date of the issuance of the certificate for reconveyance based on an implied or constructive trust must
of title over the property. When the plaintiff is in possession of perforce prescribe in ten years from the issuance of the Torrens title
the subject property, the action, being in effect that of quieting of over the property.23
title to the property, does not prescribe. In the case at bar, petitioners
(who are the plaintiffs in Civil Case No. 98-021) are not in possession
As discussed above, Civil Case No. 98-021 was filed more than 28
of the subject property. Civil Case No. 98-021, if it were to be
years from the issuance of TCT No. T-5,427. This period is
considered as that of enforcing an implied trust, should have therefore
unreasonably long for a party seeking to enforce its right to file the
been filed within ten years from the issuance of TCT No. T-5,427 on
appropriate case. Thus, petitioners’ claim that they had not slept on
December 22, 1969. Civil Case No. 98-021 was, however, filed on
their rights is patently unconvincing.
August 20, 1998, which was way beyond the prescriptive period.

Lopez vs. Court of Appeals, et. al.

As an alternative argument, petitioners claim that the prescriptive
G.R. No. 157784, December 16, 2008
period for filing their complaint is thirty years, pursuant to Article 1141
of the Civil Code, in connection with Articles 1134 and 1137 thereof,
which respectively provide: FACTS: The instant petition stemmed from an action for
reconveyance instituted by petitioner Richard B. Lopez in his capacity
as trustee of the estate of the late Juliana Lopez Manzano (Juliana) to
Art. 1141. Real actions over immovables prescribe after thirty years. recover from respondents several large tracts of lands allegedly
belonging to the trust estate of Juliana.
This provision is without prejudice to what is established for the
acquisition of ownership and other real rights by prescription. The decedent, Juliana, was married to Jose Lopez Manzano (Jose).
Their union did not bear any children. Juliana was the owner of several
Art. 1134. Ownership and other real rights over immovable property properties, among them, the properties subject of this dispute. The
are acquired by ordinary prescription through possession of ten years. disputed properties totaling more than 1,500 hectares consist of six
parcels of land, which are all located in Batangas. They were the
exclusive paraphernal properties of Juliana together with a parcel of
Art. 1137. Ownership and other real rights over immovables also land situated in Mindoro known as Abra de Ilog and a fractional
prescribe through uninterrupted adverse possession thereof for thirty interest in a residential land on Antorcha St., Balayan, Batangas.
years, without need of title or of good faith.

On 23 March 1968, Juliana executed a notarial will,4 whereby she

The theory of petitioners is that the Motion to Dismiss hypothetically expressed that she wished to constitute a trust fund for her
admits the allegations of the complaint, including the allegations paraphernal properties, denominated as Fideicomiso de Juliana Lopez
thereon that the spouses Belen were successful in fraudulently Manzano (Fideicomiso), to be administered by her husband. If her
acquiring TCT No. T-5,427 in their favor by means of the forged husband were to die or renounce the obligation, her nephew, Enrique
VENTA DEFINITIVA. Thus, for purposes of ruling on a Motion to Lopez, was to become administrator and executor of the Fideicomiso.
Dismiss, it is hypothetically admitted that private respondent Minor’s
predecessors-in-interest are in bad faith. The applicable prescriptive
period, therefore, is that provided in Article 1141 in relation to Article Juliana initiated the probate of her will five (5) days after its execution,
1137 of the Civil Code, which is thirty years. Civil Case No. 98-021 but she died on 12 August 1968, before the petition for probate could
was filed on August 20, 1998, 28 years and eight months from the be heard. The petition was pursued instead in Special Proceedings
issuance of TCT No. T-5,427 on December 22, 1969. (S.P.) No. 706 by her husband, Jose, who was the designated
executor in the will. On 7 October 1968, the Court of First Instance,
Branch 3, Balayan, Batangas, acting as probate court, admitted the
Articles 1141, 1134 and 1137 of the Civil Code, however, are general will to probate and issued the letters testamentary to Jose. Jose then
rules on prescription which should give way to the special statute on submitted an inventory of Juliana's real and personal properties with
registered lands, Presidential Decree No. 1529, otherwise known as their appraised values, which was approved by the probate court.
the Property Registration Decree. Under the Torrens System as
enshrined in P.D. No. 1529, the decree of registration and the
certificate of title issued become incontrovertible upon the expiration Thereafter, Jose filed a Report dated 16 August 1969, which included
of one year from the date of entry of the decree of registration, a proposed project of partition. In the report, Jose explained that as
without prejudice to an action for damages against the applicant or the only compulsory heir of Juliana, he was entitled by operation of
any person responsible for the fraud.21 law to one-half (1/2) of Juliana's paraphernal properties as his
legitime, while the other one-half (1/2) was to be constituted into
the Fideicomiso. At the same time, Jose alleged that he and Juliana
As previously discussed, however, we have allowed actions for had outstanding debts totaling P816,000.00 excluding interests, and
reconveyance based on implied trusts even beyond such one-year that these debts were secured by real estate mortgages. He noted
period, for such actions respect the decree of registration as that if these debts were liquidated, the "residuary estate available for
incontrovertible. We explained this in Walstrom v. Mapa, Jr.22: distribution would, value-wise, be very small."

We have ruled before in Amerol vs. Bagumbaran that notwithstanding On 25 August 1969, the probate court issued an order approving the
the irrevocability of the Torrens title already issued in the name of project of partition. As to the properties to be constituted into
another person, he can still be compelled under the law to reconvey the Fideicomiso, the probate court ordered that the certificates of title
the subject property to the rightful owner. The property registered is thereto be cancelled, and, in lieu thereof, new certificates be issued
deemed to be held in trust for the real owner by the person in whose in favor of Jose as trustee of the Fideicomiso covering one-half (1/2)
name it is registered. After all, the Torrens system was not designed of the properties listed under paragraph 14 of the project of partition;
to shield and protect one who had committed fraud or and regarding the other half, to be registered in the name of Jose as
misrepresentation and thus holds title in bad faith. heir of Juliana.

In an action for reconveyance, the decree of registration is respected

as incontrovertible. What is sought instead is the transfer of the
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58
The Fideicomiso was constituted in S.P No. 706 encompassing one- On the premise that the disputed properties were the paraphernal
half (1/2) of the Abra de Ilog lot on Mindoro, the 1/6 portion of the properties of Juliana which should have been included in
lot in Antorcha St. in Balayan, Batangas and all other properties the Fideicomiso, their registration in the name of Jose would be
inherited ab intestato by Juliana from her sister, Clemencia, in erroneous and Jose's possession would be that of a trustee in an
accordance with the order of the probate court in S.P. No. 706. The implied trust. Implied trusts are those which, without being
disputed lands were excluded from the trust. expressed, are deducible from the nature of the transaction as
matters of intent or which are superinduced on the transaction by
operation of law as matters of equity, independently of the particular
Jose died on 22 July 1980, leaving a holographic will
intention of the parties.14
disposing of the disputed properties to respondents. The will
was allowed probate on 20 December 1983 in S.P. No. 2675 before
the RTC of Pasay City. Pursuant to Jose's will, the RTC ordered on 20 The provision on implied trust governing the factual milieu of this case
December 1983 the transfer of the disputed properties to the is provided in Article 1456 of the Civil Code, which states:
respondents as the heirs of Jose. Consequently, the certificates of title
of the disputed properties were cancelled and new ones issued in the
ART. 1456. If property is acquired through mistake or fraud,
names of respondents.
the person obtaining it is, by force of law, considered a
trustee of an implied trust for the benefit of the person from
Petitioner's father, Enrique Lopez, also assumed the trusteeship of whom the property comes.
Juliana's estate. On 30 August 1984, the RTC of Batangas, Branch 9
appointed petitioner as trustee of Juliana's estate in S.P. No. 706. On
In Aznar Brothers Realty Company v. Aying,15 the Court differentiated
11 December 1984, petitioner instituted an action for
two kinds of implied trusts, to wit:
reconveyance of parcels of land with sum of money before
the RTC of Balayan, Batangas against respondents. The
complaint5 essentially alleged that Jose was able to register in his x x x In turn, implied trusts are either resulting or
name the disputed properties, which were the paraphernal properties constructive trusts. These two are differentiated from each
of Juliana, either during their conjugal union or in the course of the other as follows:
performance of his duties as executor of the testate estate of Juliana
and that upon the death of Jose, the disputed properties were Resulting trusts are based on the equitable doctrine
included in the inventory as if they formed part of Jose's that valuable consideration and not legal title
estate when in fact Jose was holding them only in trust for determines the equitable title or interest and are
the trust estate of Juliana. presumed always to have been contemplated by the
parties. They arise from the nature of circumstances of the
Respondents Maria Rolinda Manzano, Maria Rosario Santos, Jose consideration involved in a transaction whereby one person
Manzano, Jr., Narciso Manzano, Maria Cristina Manzano Rubio and thereby becomes invested with legal title but is obligated in
Irene Monzon filed a joint answer6 with counterclaim for damages. equity to hold his legal title for the benefit of another. On
Respondents Corazon, Fernando and Roberto, all surnamed Lopez, the other hand, constructive trusts are created by the
who were minors at that time and represented by their mother, filed construction of equity in order to satisfy the
a motion to dismiss,7 the resolution of which was deferred until trial demands of justice and prevent unjust enrichment.
on the merits. The RTC scheduled several pre-trial conferences and They arise contrary to intention against one who, by fraud,
ordered the parties to submit pre-trial briefs and copies of the exhibits. duress or abuse of confidence, obtains or holds the legal
right to property which he ought not, in equity and good
conscience, to hold.
On 10 September 1990, the RTC rendered a summary
judgment,8 dismissing the action on the ground of prescription of
action. The appellate court also affirmed the dismissal of the action. A resulting trust is presumed to have been contemplated by the
parties, the intention as to which is to be found in the nature of their
transaction but not expressed in the deed itself.17 Specific examples
ISSUE: The core issue of the instant petition hinges on whether
of resulting trusts may be found in the Civil Code, particularly Arts.
petitioner's action for reconveyance has prescribed. The resolution of
1448,18 1449,19 1451,20 145221 and 1453.22
this issue calls for a determination of whether an implied trust was
constituted over the disputed properties when Jose, the trustee,
registered them in his name. A constructive trust is created, not by any word evincing a direct
intention to create a trust, but by operation of law in order to satisfy
HELD: There was implied (constructive) trust. The action to claim the demands of justice and to prevent unjust enrichment.23 It is raised
constituted trust was already barred by prescription. by equity in respect of property, which has been acquired by fraud,
or where although acquired originally without fraud, it is against
Petitioner insists that an express trust was constituted over the equity that it should be retained by the person holding
disputed properties; thus the registration of the disputed properties it.24 Constructive trusts are illustrated in Arts.
in the name of Jose as trustee cannot give rise to prescription of action 1450,25 1454,26 145527 and 1456.28
to prevent the recovery of the disputed properties by the beneficiary
against the trustee. The disputed properties were excluded from the Fideicomiso at the
outset. Jose registered the disputed properties in his name partly as
Evidently, Juliana's testamentary intent was to constitute an express his conjugal share and partly as his inheritance from his wife Juliana,
trust over her paraphernal properties which was carried out when which is the complete reverse of the claim of the petitioner, as the
the Fideicomiso was established in S.P. No. 706.12 However, the new trustee, that the properties are intended for the beneficiaries of
disputed properties were expressly excluded from the Fideicomiso. the Fideicomiso. Furthermore, the exclusion of the disputed
The probate court adjudicated the disputed properties to Jose as the properties from the Fideicomiso was approved by the probate court
sole heir of Juliana. If a mistake was made in excluding the disputed and, subsequently, by the trial court having jurisdiction over
properties from the Fideicomiso and adjudicating the same to Jose as the Fideicomiso. The registration of the disputed properties in the
sole heir, the mistake was not rectified as no party appeared to name of Jose was actually pursuant to a court order. The apparent
oppose or appeal the exclusion of the disputed properties from mistake in the adjudication of the disputed properties to Jose created
the Fideicomiso. Moreover, the exclusion of the disputed properties a mere implied trust of the constructive variety in favor of the
from the Fideicomiso bore the approval of the probate court. The beneficiaries of the Fideicomiso.
issuance of the probate court's order adjudicating the disputed
properties to Jose as the sole heir of Juliana enjoys the presumption Now that it is established that only a constructive trust was
of regularity. constituted over the disputed properties, may prescription for
the recovery of the properties supervene?
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Petitioner asserts that, if at all, prescription should be reckoned only behalf of the other siblings. Juan, the father, remained in possession
when respondents caused the registration of the disputed properties of his half of the land until his death on April 6, 1940.
in their names on 13 April 1984 and not on 15 September 1969, when
Jose registered the same in his name pursuant to the probate court's
On December 13, 1976, Isabel Dator applied for a free patent
order adjudicating the disputed properties to him as the sole heir of
over the entire Tanza estate, including Lot 5793, in behalf of the
Juliana. Petitioner adds, proceeding on the premise that the
Heirs. Later, the Heirs were awarded Free Patent No. 4A-2-8976 and
prescriptive period should be counted from the repudiation of the
issued Original Certificate of Title (OCT) No. 0-23617 in the names of
trust, Jose had not performed any act indicative of his repudiation of
the Heirs.
the trust or otherwise declared an adverse claim over the disputed
properties.
Sometime in 1988, the Heirs were informed by their tenant that
private respondents cut some 50 coconut trees located within the
The argument is tenuous.
subject lot. Thus, the Heirs sent a letter,3 dated July 26, 1988, to
private respondents demanding an explanation for their intrusion into
The right to seek reconveyance based on an implied or constructive their property and unauthorized felling of trees.
trust is not absolute. It is subject to extinctive prescription.29 An action
for reconveyance based on implied or constructive trust prescribes in
On August 25, 1988, private respondents retaliated by filing an action
10 years. This period is reckoned from the date of the issuance of the
for reconveyance against petitioners xxxx (c) they were in possession
original certificate of title or transfer certificate of title. Since such
of the subject land from 1966 to the present and (d) petitioner
issuance operates as a constructive notice to the whole world, the
Isabel Dator obtained free patent OCT P-23617 over Lot 5793
discovery of the fraud is deemed to have taken place at that time.30
in favor of the Heirs by means of fraud and
misrepresentation. Thus, private respondents prayed for the
In the instant case, the ten-year prescriptive period to recover the cancellation of OCT P-23617 and the issuance of a new title in their
disputed property must be counted from its registration in the name names.
of Jose on 15 September 1969, when petitioner was charged with
constructive notice that Jose adjudicated the disputed properties to
In their answer, the Heirs denied having sold any portion of the Tanza
himself as the sole heir of Juana and not as trustee of the Fideicomiso.
estate to anyone and had been in actual, continuous, adverse and
public possession of the subject land in the concept of an owner since
It should be pointed out also that Jose had already indicated at the time immemorial.
outset that the disputed properties did not form part of
the Fideicomiso contrary to petitioner's claim that no overt acts of
After trial, the lower court rendered a decision dismissing the
repudiation may be attributed to Jose.It may not be amiss to state
action primarily on the ground of prescription of action.
that in the project of partition submitted to the probate court, Jose
had indicated that the disputed properties were conjugal in nature
and, thus, excluded from Juliana's Fideicomiso. This act is clearly xxxx
tantamount to repudiating the trust, at which point the period for
prescription is reckoned. The action for reconveyance at bar was filed on August 28,
1988 or more than eleven (11) years from the issuance of
In any case, the rule that a trustee cannot acquire by the title, a fact plaintiffs cannot deny. They cannot claim
prescription ownership over property entrusted to him until ignorance that the defendants-heirs of Pomposa Saludares
and unless he repudiates the trust applies only to express are applying for a free patent of Lot No. 5793 because
trusts and resulting implied trusts. However, in constructive notices were sent.
implied trusts, prescription may supervene even if the trustee
does not repudiate the relationship. Necessarily, repudiation of xxx xxx xxx
said trust is not a condition precedent to the running of the
prescriptive period.31 Thus, for the purpose of counting the ten-year
prescriptive period for the action to enforce the constructive trust, the On appeal, the appellate court reversed the trial court decision.
reckoning point is deemed to be on 15 September 1969 when Jose
registered the disputed properties in his name. ISSUE: Whether or not the action for reconveyance will prosper.

Heirs of Saludares vs. Court of Appeals HELD: No.

G.R. No. 128254, January 16, 2004
If private respondents indeed owned Lot 5793, they should have filed
FACTS: At the core of the present controversy is a parcel of land, an application for free patent for it just as they did for Lot 5794, or at
known as Lot 5793, measuring 8,916 square meters, located at least opposed the Heirs’ application for free patent over Lot 5793, to
Mahabang Parang, Lucban, Quezon. The land formed part of the protect their interests. As a matter of fact, they were aware that the
conjugal properties of spouses Juan Dator and Pomposa Saludares, Heirs’ tenant, Marcelo Saludares, repeatedly harvested the fruits of
known as the Tanza estate. Lot 5793.

Pomposa died on May 1, 1923, leaving herein petitioners, Enrica, But even assuming that private respondents indeed validly acquired
Petra, Restituto, Amado, Delfina, Beata, Vicenta and Isabel, all Lot 5793 in 1966 as they claimed, they nevertheless slept on their
surnamed Dator, as her compulsory heirs (hereinafter referred to as right to secure title thereto. Their unexplained inaction for more than
Heirs). 11 years rendered their demand for reconveyance stale. Vigilantibus
sed non dormientibus jura subverniunt. The law aids the vigilant, not
those who sleep on their rights. This legal precept finds perfect
On February 28, 1940, the Heirs and their father Juan executed a application in the case at bar.
deed of extra-judicial partition of the share of Pomposa in the Tanza
estate. The settlement conferred the eastern half of the Tanza estate
to Juan and the western half to the Heirs. Notwithstanding the indefeasibility of the Torrens title, the registered
owner may still be compelled to reconvey the registered property to
its true owner. The rationale for the rule is that reconveyance does
Before the aforementioned partition, Juan was in possession of the not set aside or re-subject to review the findings of fact of the Bureau
entire Tanza estate. After the partition, the Heirs took possession of of Lands. In an action for reconveyance, the decree of registration is
their share and had the same tenanted by a certain Miguel Dahilig, respected as incontrovertible. What is sought instead is the transfer
husband of Petra, one of the Heirs, who in turn managed the land in of the property or its title which has been wrongfully or erroneously
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60
registered in another person’s name, to its rightful or legal owner, or Carmen mortgaged the Subject Land for ₱7,000.00 with the
to the one with a better right.7 Development Bank of the Philippines ("DBP"). To pay the debt,
Carmen and Godofredo sold the Subject Land to Armando and Adelia
for ₱15,000.00, the buyers to pay the DBP loan and its accumulated
Nevertheless, the right to seek reconveyance of registered property is
interest, and the balance to be paid in cash to the sellers.
not absolute because it is subject to extinctive prescription. In Caro
vs. Court of Appeals,8 the prescriptive period of an action for
reconveyance was explained: Armando and Adelia gave Godofredo and Carmen the money to pay
the loan to DBP which signed the release of mortgage and returned
the owner’s duplicate copy of OCT No. 284 to Godofredo and Carmen.
Under the present Civil Code, we find that just as an implied
Armando and Adelia subsequently paid the balance of the purchase
or constructive trust is an offspring of the law (Art. 1456,
price of the Subject Land for which Carmen issued a receipt dated 11
Civil Code), so is the corresponding obligation to reconvey
March 1970. Godofredo and Carmen then delivered to Adelia the
the property and the title thereto in favor of the true owner.
owner’s duplicate copy of OCT No. 284. Godofredo and Carmen
In this context, and vis-à-vis prescription, Article 1144 of
introduced Armando and Adelia, as the new owners of the Subject
the Civil Code is applicable.
Land, to the Natanawans, the old tenants of the Subject Land.
Armando and Adelia then took possession of the Subject Land.
Article 1144. The following actions must be brought within
ten years from the time the right of action accrues:
In January 1994, Armando and Adelia learned that hired persons had
entered the Subject Land and were cutting trees under instructions of
(1) Upon a written contract; allegedly new owners of the Subject Land. Subsequently, Armando
and Adelia discovered that Godofredo and Carmen had re-sold
(2) Upon an obligation created by law; portions of the Subject Land to several persons.

(3) Upon a judgment. In their answer, Godofredo and Carmen and the Subsequent Buyers
(collectively "petitioners") argued that the action is unenforceable
under the Statute of Frauds. Petitioners pointed out that there is no
xxx xxx xxx written instrument evidencing the alleged contract of sale over the
Subject Land in favor of Armando and Adelia.
An action for reconveyance has its basis in Section 53,
paragraph 3 of Presidential Decree No. 1529, which On 7 June 1996, the trial court rendered its decision in favor of
provides: Armando and Adelia declaring that there was perfected contract of
sale. The appellate court affirmed the trial court stating that the
In all cases of registration procured by fraud, the owner handwritten receipt dated 11 March 1970 is sufficient proof of sale.
may pursue all his legal and equitable remedies against the
parties to such fraud without prejudice, however, to the Petitioners went to the Supreme Court and insisted that prescription
rights of any innocent holder of the decree of registration and laches have set in.
on the original petition or application, x x x.
ISSUE: Whether or not complaint is already barred by laches and
This provision should be read in conjunction with Article prescription.
1456 of the Civil Code, which provides:
HELD: No.
Article 1456. If property is acquired through mistake or
fraud, the person obtaining it is, by force of law, considered The Amended Complaint filed by Armando and Adelia with the trial
a trustee of an implied trust for the benefit of the person court is captioned as one for Specific Performance. In reality, the
from whom the property comes. ultimate relief sought by Armando and Adelia is the reconveyance to
them of the Subject Land. An action for reconveyance is one that
The law thereby creates the obligation of the trustee to seeks to transfer property, wrongfully registered by another, to its
reconvey the property and the title thereto in favor of the rightful and legal owner.37 The body of the pleading or complaint
true owner. Correlating Section 53, paragraph 3 of determines the nature of an action, not its title or heading.38 Thus, the
Presidential Decree No. 1529 and Article 1456 of the Civil present action should be treated as one for reconveyance.39
Code with Article 1144(2) of the Civil Code, supra, the
prescriptive period for the reconveyance of fraudulently Article 1456 of the Civil Code provides that a person acquiring
registered real property is ten (10) years reckoned from the property through fraud becomes by operation of law a trustee of an
date of the issuance of the certificate of title. implied trust for the benefit of the real owner of the property. The
presence of fraud in this case created an implied trust in favor of
There is but one instance when prescription cannot be Armando and Adelia. This gives Armando and Adelia the right to seek
invoked in an action for reconveyance, that is, when the reconveyance of the property from the Subsequent Buyers.40
plaintiff is in possession of the land to be reconveyed.9
To determine when the prescriptive period commenced in an action
Spouses Alfredo vs. Spouses Borras for reconveyance, plaintiff’s possession of the disputed property is
G.R. No. 144225, June 17, 2003 material. An action for reconveyance based on an implied trust
prescribes in ten years.41 The ten-year prescriptive period applies only
if there is an actual need to reconvey the property as when the
FACTS: A parcel of land measuring 81,524 square meters ("Subject
plaintiff is not in possession of the property.42 However, if the plaintiff,
Land") in Bataan is the subject of controversy in this case. The
as the real owner of the property also remains in possession of the
registered owners of the Subject Land were petitioner spouses. The
property, the prescriptive period to recover title and possession of the
Subject Land is covered by Original Certificate of Title No. 284 ("OCT
property does not run against him.43 In such a case, an action for
No. 284") issued to Godofredo and Carmen under Homestead Patent
reconveyance, if nonetheless filed, would be in the nature of a suit for
No. V-69196.
quieting of title, an action that is imprescriptible.44

On 7 March 1994, the private respondents, spouses Armando

In this case, the appellate court resolved the issue of prescription by
Borras ("Armando") and Adelia Lobaton Borras ("Adelia"),
ruling that the action should prescribe four years from discovery of
filed a complaint for specific performance against petitioners.
the fraud. We must correct this erroneous application of the four-year
Armando and Adelia alleged in their complaint that Godofredo and
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prescriptive period. In Caro v. Court of Appeals,45 we explained why without prejudice, however, to the rights of any innocent holder of
an action for reconveyance based on an implied trust should prescribe the decree of registration on the original petition or application, xxx
in ten years. In that case, the appellate court also erroneously applied
the four-year prescriptive period. We declared in Caro:
This provision should be read in conjunction with Article 1456 of the
Civil Code, which provides:
We disagree. The case of Liwalug Amerol, et al. v. Molok Bagumbaran,
G.R. No. L-33261, September 30, 1987,154 SCRA 396 illuminated
Article 1456. If property is acquired through mistake or fraud, the
what used to be a gray area on the prescriptive period for an action
person obtaining it is, by force of law, considered a trustee of an
to reconvey the title to real property and, corollarily, its point of
implied trust for the benefit of the person from whom the property
reference:
comes.

xxx It must be remembered that before August 30, 1950, the date of
The law thereby creates the obligation of the trustee to reconvey the
the effectivity of the new Civil Code, the old Code of Civil Procedure
property and the title thereto in favor of the true owner. Correlating
(Act No. 190) governed prescription. It provided:
Section 53, paragraph 3 of Presidential Decree No. 1529 and Article
1456 of the Civil Code with Article 1144(2) of the Civil Code, supra,
SEC. 43. Other civil actions; how limited.- Civil actions other than for the prescriptive period for the reconveyance of fraudulently registered
the recovery of real property can only be brought within the following real property is ten (10) years reckoned from the date of the issuance
periods after the right of action accrues: of the certificate of title xxx (Emphasis supplied)46

xxx xxx xxx Following Caro, we have consistently held that an action for
reconveyance based on an implied trust prescribes in ten years.47 We
went further by specifying the reference point of the ten-year
3. Within four years: xxx An action for relief on the ground of fraud,
prescriptive period as the date of the registration of the deed or the
but the right of action in such case shall not be deemed to have
issuance of the title.48
accrued until the discovery of the fraud;

Had Armando and Adelia remained in possession of the Subject Land,

xxx xxx xxx
their action for reconveyance, in effect an action to quiet title to
property, would not be subject to prescription. Prescription does not
In contrast, under the present Civil Code, we find that just as an run against the plaintiff in actual possession of the disputed land
implied or constructive trust is an offspring of the law (Art. 1456, Civil because such plaintiff has a right to wait until his possession is
Code), so is the corresponding obligation to reconvey the property disturbed or his title is questioned before initiating an action to
and the title thereto in favor of the true owner. In this context, and vindicate his right.49 His undisturbed possession gives him the
vis-a-vis prescription, Article 1144 of the Civil Code is applicable. continuing right to seek the aid of a court of equity to determine the
nature of the adverse claim of a third party and its effect on his title.50
Article 1144. The following actions must be brought within ten years
from the time the right of action accrues: Samonte vs. Court of Appeals
G.R. No. 104223, July 12, 2001
(1) Upon a written contract;
FACTS: Tiburcio Samonte (petitioner) filed this petition for review
on certiorari seeking to reverse and set aside the Decision, dated
(2) Upon an obligation created by law; November 29, 1991, of the Court of Appeals (CA) in CA-G.R CV No.
16645. He likewise seeks the reversal of CA Resolution, dated
(3) Upon a judgment. February 21, 1992, which denied his motion for reconsideration.

xxx xxx xxx The parcel of land (Lot No.216) subject of this dispute is situated in
Nasipit, Agusan del Norte, and originally covered by Original
Certificate of Title No. RO-238(555) issue in the names Apolonia Abao
(Emphasis supplied).
and her daughter Irenea Tolero, pro indiviso. It contained an area of
12,753 square meters. Two cases were separately filed in the Regional
An action for reconveyance based on an implied or constructive trust Trial Court, Branch II of Nasipit, Agusan del Norte involving the entire
must perforce prescribe in ten years and not otherwise. A long line of lot. Both cases were filed by the surviving heirs of Apolonia
decisions of this Court, and of very recent vintage at that, illustrates Abao and Irenea Tolero.1 These heirs, children of Irenea Tolero
this rule. Undoubtedly, it is now well-settled that an action for and grand children of Apolonia Abao, are the respondents in this case.
reconveyance based on an implied or constructive trust prescribes in
ten years from the issuance of the Torrens title over the property. The
The first case, Civil Case No.1672, was an action for quieting of
only discordant note, it seems, is Balbin vs. Medalla which states that
title and recovery of possession of a parcel of land which originally
the prescriptive period for a reconveyance action is four years.
formed part of the entire property. Said parcel of land was
However, this variance can be explained by the erroneous reliance on
denominated as Lot 216-B-2-G and covered by Transfer Certificate of
Gerona vs. de Guzman. But in Gerona, the fraud was discovered on
Title (TCT) No. RT-899 in the name of Irenea Tolero. The defendants
June 25,1948, hence Section 43(3) of Act No. 190, was applied, the
named therein were spouses Andres and Amanda Lacho.
new Civil Code not coming into effect until August 30, 1950 as
mentioned earlier. It must be stressed, at this juncture, that article
1144 and article 1456, are new provisions. They have no counterparts The second case, Civil Case No.1816, is similarly an action for
in the old Civil Code or in the old Code of Civil Procedure, the latter quieting of title and recovery of possession. Unlike the first case,
being then resorted to as legal basis of the four-year prescriptive however, Civil Case No.1816 involve the entire Lot 216. The complaint
period for an action for reconveyance of title of real property acquired therein sought the annulment of several certificates of title covering
under false pretenses. portions of Lot 216 and the reinstatement of OCT No. RO-238 (555).
The defendants in the second wase were Nicolas Jadol, Beatriz Jadol,
Jacobo Tagorda, Henry Jadol, Aurelio Rotor and herein petitioner.
An action for reconveyance has its basis in Section 53, paragraph 3 of
Presidential Decree No. 1529, which provides:
Plaintiffs in their evidence claim ownership over the entire
lot, Lot 216, as one-half(1/2) of the area of 12, 753 square
In all cases of registration procured by fraud, the owner may pursue
meters was registered in the name of their mother Irenea
all his legal and equitable remedies against the parties to such fraud
Tolero (Exhibit E) the other half was registered in the name
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of their and grandmother, Apolonia Abao. After Apolonia As it had been indubitably established that fraud attended the
Abao died during the Japanese occupation and Irenea registration of a portion of the subject property, it can be said that
Tolero died in 1945, they inherited and became owners of the Jadol spouses were trustees thereof on behalf of the surviving
Lot 216. Plaintiffs questioned the series of cancellation of heirs of Abao. An action based on implied or constructive trust
the certificate of title starting from OCT No. RO-238 (555) prescribes in ten (10) years from the time of its creation or upon the
and the Deed of Extrajudicial Settlement and Confirmation alleged fraudulent registration of the property.9
of Sale executed by Ignacio Atupan on August 7, 1957
(Exhibit D-1) adjudicating one-half(1/2) of the area of Lot
Petitioner, as successor-in-interest of the Jadol Spouses, now argues
216. Plaintiffs maintain that Ignacio Atupan is not a son of
that the respondents' action for reconveyance, filed only in 1975, had
Apolonia Abao but he only grew up while living with
long prescribed considering that the Jadol spouses caused the
Apolonia Abao. That when Lot 216 was subdivided into two
registration of a portion of the subject lot in their names way back in
(2) lots, Lot 216-A and Lot 216-B which was made as one
August 8, 1957. It is petitioner's contention that since eighteen years
of the basis in the cancellation of TCT No. 476 and issuance
had already lapsed from the issuance of TCT No. RT-476 until the time
of TCT No. 553 and TCT No. 554 on February 13, 1959, the
when respondents filed the action in the court a quo in 1975, the
plaintiffs or their predecessors-in-interest have not signed
same was time-barred.
any document agreeing as to the manner how Lot 216 was
to be divided, nor have they consented to the partition of
the same. Petitioner's defense of prescription is untenable. The general rule that
the discovery of fraud is deemed to have taken place upon the
registration of real property because it is considered a constructive
Defendant Samonte in his evidence claim that he bought
notice to all persons"10 does not apply in this case. Instead, the CA
portions of the Lot 216 in good faith as he was made to
correctly applied the ruling in Adille vs. Court of Appeals11 which is
believe that all the papers in possession of his vendors were
substantially on all fours with the present case.
all in order. One of the documents presented by him is a
Deed of Absolute Sale executed in 1939 (Exhibit 8-Samonte
). He has been in open, continuous, adverse and exclusive In Adille, petitioner therein executed a deed of extrajudicial partition
possession of the portions of Lot 216 he bought for more misrepresenting himself to be the sole heir of his mother when in fact
than 20 years and have declared the land for taxation she had other children. As a consequence, petitioner therein was able
purposes (Exhibits 5 and 7-Samonte) and have paid the real to secure title to the land in his name alone. His siblings then filed a
estate taxes thereon (Exhibit 6 to 6-K, inclusive Samonte). case for partition on the ground that said petitioner was only a trustee
The portions he bought is now covered by TCT No. RT-553 on an implied trust of the property. Among the issues resolved by the
(Exhibit 2-Samonte) and TCT No. RT-1658 (Exhibit 4- Court in that case was prescription. Said petitioner registered the
Samonte). property in 1955 and the claim of private respondents therein was
presented in 1974.
Defendant Jadols claim that they became owners of one-
half(1/2) portion of Lot 216 by purchase from Ignacio The Court's resolution of whether prescription had set in therein is
Atupan and Apolonia Abao on September 15, 1939 as quite apropos to the instant case:
shown by a document notarized by Jacobo Bello (Exhibit 1-
Jadol) and signed by lrenea Tolero (Exhibit 1-D Jadol) as a It is true that registration under the Torrens system is
witness. They were in possession since they bought the constructive notice of title, but it has likewise been our
land. The land is covered by Tax Declaration No. 1630 holding that the Torrens title does not furnish a shield for
(Exhibit 2-Jadol) and Tax Declaration No. 1676 (Exhibit 3- fraud. It is therefore no argument to say that the act of
Jadol) in their name (Decision, pp. 36-39).2 registration is equivalent to notice of repudiation, assuming
there was one, notwithstanding the long-standing rule that
After due trial, the trial court rendered separate decisions, both in registration operates as a universal notice of title.
favor of the plaintiffs therein. The CA rendered the decision of
November 29, 1991 affirming the decisions of the trial court and For the same reason, we cannot dismiss private
dismissing the appeals. respondents' claims commenced in 1974 over the estate
registered in 1955. While actions to enforce a constructive
ISSUE: Whether the action has prescribed. trust prescribes in ten years, reckoned from the date of the
registration of the property, we, as we said, are not
HELD: No. prepared to count the period from such a date in this case.
We note the petitioner's sub rosa efforts to get hold of the
Based on the foregoing facts, the CA, on appeal, ruled that the property exclusively for himself beginning with his
cancellation of OCT No. RO-238(555) and the consequent issuance of fraudulent misrepresentation in his unilateral affidavit of
TCT No. RT-476 in its place in the name of the Jadol spouses were extrajudicial settlement that he is "the only heir and child
effected through fraudulent means and that they (spouses Jadol) not of his mother Feliza with the consequence that he was able
only had actual knowledge of the fraud but were also guilty of bad to secure title in his name [alone]." Accordingly, we hold
faith.7 that the right of the private respondents commenced from
the time they actually discovered the petitioner's act of
defraudation. According to the respondent Court of
Nonetheless, petitioner contends that respondent's action in the
Appeals, they "came to know [of it] apparently only during
court a quo had already prescribed. Generally, an action for
the progress of the litigation." Hence, prescription is not a
reconveyance of real property based on the fraud may be barred by
bar. 12
the statute of limitations which require that the action must be
commenced within four (4) years from the discovery of fraud, and in
case of registered land, such discovery is deemed to have taken place In this case, the CA reckoned the prescriptive period from the time
from the date of the registration of title.8 respondents had actually discovered the fraudulent act of Atupan
which was, as borne out by the records, only during the trial of Civil
Case No. 1672.13 Citing Adille, the CA rightfully ruled that
Article 1456 of the Civil Code, however, provides:
respondents' action for reconveyance had not yet prescribed.

Art. 1456. If property is acquired through mistake or fraud,

Adriano vs. Court of Appeals
the person obtaining it is, by force of law, considered a
G.R. No. 124118, March 27, 2000
trustee of an implied trust for the benefit of the person from
whom the property comes.
FACTS: The testator, Lucio Adriano also known as Ambrocio Adriano,
married Gliceria Dorado on October 29, 1933. Out of their lawful
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63
marriage, they had three children, namely, Celeste, Manolo, and Aida, during their period of cohabitation before their marriage in 1968 is
private respondents in this case. Sometime in 1942 or prior thereto. without lawful basis considering that Lucio's marriage with Gliceria
Lucio and Gliceria separated, and Gliceria settled in Rizal, Laguna was then subsisting. The co-ownership in Article 144 of the Civil
where she died on June 11, 1968. Also in 1942 or even earlier, Lucio Code 13 requires that the man and woman living together as husband
cohabited with Vicente Villa, with whom he had eight children Marino, and wife without the benefit of marriage must not in any way be
Renato, Leticia, Imelda, Maria Alicia, Ligaya, Jose Vergel, and incapacitated to marry. 14 Considering that the property was acquired
Zenaida, all surnamed Adriano. All his children by Vicenta Villa are in 1964, or while Lucio's marriage with Gliceria subsisted, such
named petitioners in the instant case, with the exception of Jose property is presumed to be conjugal unless it be proved that it
Vergel, who died before the inception of the proceedings. pertains exclusively to the husband or to the wife. 15 Thus, we ruled
in Pisueñe vs. Heirs of Petra Unating and Aquilino Villar 16 that
the prima facie presumption that properties acquired during the
On November 22, 1968, or five months after the death of Gliceria,
marriage are conjugal cannot prevail over a court's specific finding
Lucio married Vicenta. Lucio and Vicenta and their children lived in
reached in adversarial proceedings to the contrary.
Candelaria, Quezon until the spouses separated in 1972.3

As found by both the trial court and respondent court in this case, not
On October 10, 1980, Lucio executed a last will and testament
only did petitioners fail to overcome the presumption of conjugality of
disposing of all his properties, and assigning among others, his second
the disputed property, private respondents have also presented
wife Vicenta and all his children by his first and second marriage as
sufficient evidence to support their allegation that the property was in
devisees and legatees therein. Among the properties bequeathed in
fact purchased by Lucio with proceeds of the conjugal fund of his first
the will were a 45,000 square meter lot and the residential house, rice
marriage. This factual finding, which is clearly borne out by the
mill, warehouse and equipment situated thereon located in
evidence on record, is binding and conclusive upon us and will not be
Candelaria, Quezon and registered under Transfer Certificate of Title
disturbed.
("TCT") No. T-56553 in the Registry of Deeds of Quezon4 , which was
disposed of in the following manner; (1) to private respondents,
Lucio's children by his first wife, 10,000 square meters of the disputed Although in cases of common-law relations where an impediment to
property, including the warehouse, rice mill, and equipment situated marry exists, equity would dictate that property acquired by the man
thereon; (2) to Vicenta and petitioners, his children by his second and woman through their joint endeavor should be allocated to each
marriage the remaining 35,000 square meters, and (3) to private of them in proportion to their respective efforts, 17 petitioners in the
respondents, the residential house also within the same property.5 instant case have not submitted any evidence that Vicenta actually,
contributed to the acquisition of the property in question.
On August 17, 1988, and while the proceedings for settlement of
estate were pending before the RTC, petitioners instituted an We cannot agree with petitioners' bare and expedient assertion that,
action for annulment of Lucio Adriano's will which was because the title to the property was registered in the name of both
docketed as Civil Case No. 88-115. In the complaint plaintiffs- Lucio and Vicenta, she should thereby be deemed owner to half of it.
petitioners alleged that before the marriage of Lucio and their mother, A certificate of title under the Torrens system is aimed to protect
Vicenta, on November 22, 1968, the two lived together as husband dominion, and should certainly not be turned into an instrument for
and wife and as such, acquired properties which became the subject deprivation of ownership. 18 Because a just and complete resolution of
of inventory and administration in Spec. Proc. No. 4442. Plaintiffs this case could only be arrived at by determining the real ownership
claimed that the properties bequeathed in Lucio's will are undivided of the contested property, evidence apart from or contrary to the
"civil partnership and/or conjugal properties of Lucio Adriano and certificate of title bears considerable importance. 19 This assumes
Vicenta Villa", and thus, the will sought to be probated should be peculiar force in the instant situation where the heirs of a lawful pre-
declared void and ineffective insofar as it disposes of the rightful share existing marriage stand to be deprived. Thus, in Belcodero vs. Court
or properties of Vicenta.7 of Appeals, 20 we held that property acquired by a man while living
with a common-law wife during the subsistence of his marriage is
conjugal property, even when the property was titled in the name of
The trial court favored the evidence of private respondents, which
the common-law wife. In such cases, a constructive trust is deemed
indicated that the purchase money for the contested properties came
to have been created by operation of Article 1456 of the Civil Code
from the earnings of Lucio in a business partnership that he entered
over the property which lawfully pertains to the conjugal partnership
into in 1947, or during the subsistence of his marriage to Gliceria.
of the subsisting marriage.

The Court of Appeals dismissed petitioners' appeal for lack of merit,

Art. 1456. If property is acquired through mistake or fraud,
and affirmed in toto the Joint Order of the RTC of Lucena City.
the person obtaining it is, by force of law considered a
trustee of an implied trust for the benefit of the person from
As elevated before SC, the petition takes issue only in respect of the whom the property comes.1âwphi1
property covered by TCT No. T-56553. Petitioners insist that it was
erroneous of respondent court not to have upheld the co-ownership
In Vicenta's case, it is clear that her designation as a co-owner of the
of Vicenta to 1/2 of said property, and to have declared the entire
property in TCT No. T-56553 is a mistake which needs to be rectified
property as belonging to the conjugal partnership of Lucio and
by the application of the foregoing provisions of Article 1456 and the
Gliceria. The petition essentially relies on the following grounds: (1)
ruling in Belcodero. The principle that a trustee who takes a Torrens
TCT No. T-56553, issued to "Spouses, LUCIO ADRIANO and VICENTA
title in his or her name cannot repudiate the trust by relying on the
VILLA" 10 , constitutes conclusive and indefeasible evidence of
registration, is a well-known exception to the principle of
Vicenta's co-ownership in the property, 11 and (2) the Deed of Sale
conclusiveness of a certificate of title.
dated March 15, 1964, as annotated in OCT No. O-9198 12 , the
mother title of TCT No. T-56553, designates Vicenta Villa as a co-
vendee. Petitioners maintain that the Deed of Sale, being the "best
evidence" of the contents thereof, proves Vicenta's co-ownership in Hortizuela vs. Tagufa
the land. G.R. No. 205867, February 23, 2015

FACTS: The property involved in this case is a parcel of land located

ISSUE: Whether or not there is trust created in the properties in the at District IV, Tumauini, Isabela containing an area of 539 square
name of Vicenta. meters, more or less, and covered by OCT No. P-84609 of the Registry
of Deeds of Isabela. By virtue of the special power of attorney xxx
HELD: Yes. executed by Mariflor Tagufa Hortizuela, Jovier Tagufa instituted this
case against herein defendants praying for the peaceful surrender of
the above-described property unto them and further ordering
We see no reason to reverse respondent court. Petitioners' insistence defendant Gregoria Tagufa to reconvey in plaintiff’s favor the same
that a co-ownership of properties existed between Lucio and Vicenta property which was titled under her name via fraud.
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64
Before it was titled in the name of Defendant Tagufa, said property Heirs of Espiritu vs. Spouses Landrito
was originally owned by plaintiff’s parents, Spouses Epifanio Tagufa G.R. No. 169617, April 3, 2007
and Godofreda Jimenez. Although untitled, the spouses mortgaged
the property with the Development Bank of the Philippines (DBP, for FACTS: On 5 September 1986, Spouses Landrito loaned from the
brevity). For failure to redeem the property, DBP foreclosed the same Spouses Espiritu the amount of ₱350,000.00 payable in three months.
and sold it to Atty. Romulo Marquez xxx who, in turn, sold it back to To secure the loan, the Spouses Landrito executed a real estate
Runsted Tagufa, husband of defendant Gregoria Tagufa, on April 4, mortgage over a five hundred forty (540) square meter lot located in
2002 xxx using the fund sent by plaintiff Hortizuela who was in Alabang, Muntinlupa,. After three months, when the debt became due
America and with the agreement that Runsted will reconvey the said and demandable, the Spouses Landrito were unable to pay the
property to her sister when demanded. However, plaintiff discovered principal. Said loand was extended many times until it shoot up to
that the same unregistered property was titled in the name of ₱874,125.00.
Gregoria Tagufa under OCT No. P-84609 of the Registry of Deeds of
Isabela xxx. Investigating further, plaintiff discovered that Gregoria
Tagufa was able to title the said property by virtue of a free patent The debt remained unpaid. As a consequence, the Spouses
application before the Department of Environment and Natural Espiritu foreclosed the mortgaged property on 31 October
Resources (DENR) and the execution of a Deed of Extrajudicial 1990. During the auction sale, the property was sold to the Spouses
Settlement of the Estate of the late Spouses Leandro Tagufa and Espiritu as the lone bidder. On 9 January 1991, the Sheriff’s Certificate
Remedios Talosig dated May 9,2003 xxx. Plaintiff now seeks to of Sale was annotated on the title of the mortgaged property, giving
recover possession of the said property which is presently occupied the Spouses Landrito until 8 January 1992 to redeem the
by Gregoria Tagufa and her co-defendants and have the same be property. However, upon inquiry, they found out that on 24 June
reconveyed unto them.6 1992, the Spouses Espiritu had already executed an Affidavit of
Consolidation of Ownership and registered the mortgaged property in
their name, and that the Register of Deeds of Makati had already
The MCTC dismissed the complaint for lack of merit ruling that "in the issued Transfer Certificate of Title No. 179802 in the name of the
judicious analysis by this court, plaintiffs have resorted to a wrong Spouses Espiritu.
cause of action. The RTC reversed the MCTC ruling and ordering the
defendant Gregorio Tagufa to reconvey to the plaintiff Mariflor Tagufa
Hortizuela the land. On appeal, the CA reversed the RTC and favored On 9 October 1992, the Spouses Landrito, represented by
the respondents. their son Zoilo Landrito, filed an action for annulment or
reconveyance of title, with damages against the Spouses
Espiritu before Branch 146 of the Regional Trial Court of
Hortizuela claims that respondent Gregoria Tagufa (Gregoria),being Makati.9 Among the allegations in their Complaint, they
the wife of Runsted, was certainly aware that the subject land was stated that the Spouses Espiritu, as creditors and
actually sold by Atty. Romulo Marquez (Atty. Marquez) to her mortgagees, "imposed interest rates that are shocking to
(Hortizuela). Runsted, only acted as attorney-in-fact in the sale one’s moral senses."10
transaction. Thus, the action for reconveyance was not a collateral
attack on the said title because Hortizuela was not seeking the
nullification of the title, but rather the reconveyance of the property, The trial court dismissed the complaint and upheld the validity of the
covered by the said title, which Gregoria was holding in trust for her foreclosure sale. On appeal, the Court of Appeals reversed the trial
benefit as the real owner. Gregoria should, therefore, reconvey the court’s decision and held that the action for reconveyance, filed by the
property and its title to her, being the rightful owner. Spouses Landrito, is still a proper remedy. Even if the Spouses
Landrito failed to redeem the property within the one-year redemption
period provided by law, the action for reconveyance remained as a
remedy available to a landowner whose property was wrongfully
registered in another’s name since the subject property has not yet
ISSUE: Whether or not Gregoria acquired the property by virtue of passed to an innocent purchaser for value.
her certificate of title.

HELD: Yes. ISSUE: Whether or not Spouses Espiritu may validly defeat an action
to recover said property despite having obtained said property in a
In this case, in filing the complaint for reconveyance and recovery of foreclosure proceeding.
possession, Hortizuela was not seeking a reconsideration of the
granting of the patent or the decree issued in the registration HELD: No.
proceedings. What she was seeking was the reconveyance of the
subject property on account of the fraud committed by respondent For an obligation to become due, there must be a valid demand.27 Nor
Gregoria. An action for reconveyance is a legal and equitable remedy can the foreclosure proceedings be considered valid since the total
granted to the rightful landowner, whose land was wrongfully or amount of the indebtedness during the foreclosure proceedings was
erroneously registered in the name of another, to compel the pegged at ₱874,125.00 which included interest and which this Court
registered owner to transfer or reconvey the land to him.25 Thus, the now nullifies for being excessive, iniquitous and exorbitant. If the
RTC did not err in upholding the right of Hortizuela to ask for the foreclosure proceedings were considered valid, this would result in an
reconveyance of the subject property. To hold otherwise would be to inequitable situation wherein the Spouses Landrito will have their land
make the Torrens system a shield for the commission of fraud. To foreclosed for failure to pay an over-inflated loan only a small part of
reiterate, which they were obligated to pay.

The fact that petitioner (referring to private respondents) was able to Moreover, it is evident from the facts of the case that despite
secure a title in her name did not operate to vest ownership upon her considerable effort on their part, the Spouses Landrito failed to
of the subject land. Registration of a piece of land under the Torrens redeem the mortgaged property because they were unable to raise
System does not create or vest title, because it is not a mode of the total amount, which was grossly inflated by the excessive interest
acquiring ownership. A certificate of title is merely an evidence of imposed. Their attempt to redeem the mortgaged property at the
ownership or title over the particular property described therein. It inflated amount of ₱1,595,392.79, as early as 30 October 1991, is
cannot be used to protect a usurper from the true owner; nor can it reflected in a letter, which creditor-mortgagee Zoilo Landrito
be used as a shield for the commission of fraud; neither does it permit acknowledged to have received by affixing his signature herein.
one to enrich himself at the expense of others. Its issuance in favor
of a particular person does not foreclose the possibility that the real
Since the Spouses Landrito, the debtors in this case, were not given
property may be co-owned with persons not named in the certificate,
an opportunity to settle their debt, at the correct amount and without
or that it may be held in trust for another person by the registered
the iniquitous interest imposed, no foreclosure proceedings may be
owner.
instituted. A judgment ordering a foreclosure sale is conditioned upon
a finding on the correct amount of the unpaid obligation and the
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
65
failure of the debtor to pay the said amount.31 In this case, it has not Case No. 3313 and raffled to Branch 18 of RTC, Digos City, Davao
yet been shown that the Spouses Landrito had already failed to pay del Sur.
the correct amount of the debt and, therefore, a foreclosure sale
cannot be conducted in order to answer for the unpaid debt. The
In his complaint, Ciriaco averred that Antonio could not validly
foreclosure sale conducted upon their failure to pay ₱874,125 in 1990
mortgage the entire Lot 13521 to PNB as a portion thereof
should be nullified since the amount demanded as the outstanding
consisting of 2.5002 hectares belongs to him (Ciriaco), as already
loan was overstated;
held in Civil Case No. 2514. He claimed that PNB is not an innocent
mortgagee/purchaser for value because prior to the execution and
As a result, the subsequent registration of the foreclosure sale cannot registration of PNB’s deed of sale with the Register of Deeds, the
transfer any rights over the mortgaged property to the Spouses bank had prior notice that the disputed lot is subject of a litigation.
Espiritu. The registration of the foreclosure sale, herein declared It would appear that during the pendency of Civil Case No. 2514, a
invalid, cannot vest title over the mortgaged property. The Torrens notice of lis pendens was annotated at the back of OCT No. P-4952
system does not create or vest title where one does not have a rightful as Entry No. 16554712 on November 28, 1988.
claim over a real property. It only confirms and records title already
existing and vested. It does not permit one to enrich oneself at the
The RTC ordered the partial nullification of the mortgage and the
expense of another.32 Thus, the decree of registration, even after the
reconveyance of the subject lot claimed by Ciriaco. This was later
lapse of one (1) year, cannot attain the status of indefeasibility.
affirmed by the Court of Appeals.

Significantly, the records show that the property mortgaged was

In essence, PNB contends that the lower courts grievously erred in
purchased by the Spouses Espiritu and had not been transferred to
declaring that it is not an innocent mortgagee/purchaser for value.
an innocent purchaser for value. This means that an action for
PNB also argues that Ciriaco’s complaint is barred by prescription.
reconveyance may still be availed of in this case.33
TCT No. T-23063 was issued on March 23, 1990, while Ciriaco filed
his complaint only six years thereafter. Thus, the one-year period to
Registration of property by one person in his or her name, whether nullify PNB’s certificate of title had lapsed, making PNB’s title
by mistake or fraud, the real owner being another person, impresses indefeasible. Moreover, PNB claims that an action for reconveyance
upon the title so acquired the character of a constructive trust for the prescribes in four years if based on fraud, or, 10 years if based on
real owner, which would justify an action for reconveyance.34 This is an implied trust, both to be counted from the issuance of OCT No.
based on Article 1465 of the Civil Code which states that: P-4952 in July 1971 which constitutes as a constructive notice to the
whole world.
Art. 1465. If property acquired through mistakes or fraud, the person
obtaining it is, by force of law, considered a trustee of an implied trust ISSUE: Whether or not the action of private respondents has
for benefit of the person from whom the property comes. prescribed.

HELD: No.
The action for reconveyance does not prescribe until after a period of
ten years from the date of the registration of the certificate of sale
since the action would be based on implied trust.35 Thus, the action
for reconveyance filed on 31 October 1992, more than one year after Ciriaco’s action for reconveyance is inprescriptible.
the Sheriff’s Certificate of Sale was registered on 9 January 1991, was
filed within the prescription period.
Also, the incontrovertibility of a title does not preclude a rightful
claimant to a property from seeking other remedies because it was
PNB vs. Jumamoy, et. al. never the intention of the Torrens system to perpetuate fraud. As
G.R. No. 169901, August 3, 2011 explained in Vda. de Recinto v. Inciong:29

FACTS: On December 27, 1989, the RTC, Branch 19, of Digos City, The mere possession of a certificate of title under the Torrens system
Davao del Sur, rendered a Decision5 in Civil Case No. 2514 (a case for does not necessarily make the possessor a true owner of all the
Reconveyance and Damages), ordering the exclusion of 2.5002 property described therein for he does not by virtue of said certificate
hectares from Lot 13521. The trial court found that said 2.5002 alone become the owner of the land illegally included. It is evident
hectares which is part of Lot 13521, a 13,752-square meter parcel of from the records that the petitioner owns the portion in question and
land covered by Original Certificate of Title (OCT) No. P- therefore the area should be conveyed to her. The remedy of the land
49526 registered in the name of Antonio Go Pace (Antonio) on July owner whose property has been wrongfully or erroneously registered
19, 1971 actually pertains to Sesinando Jumamoy (Sesinando), in another's name is, after one year from the date of the decree, not
Ciriaco’s predecessor-in-interest. The RTC found that said 2.5002- to set aside the decree, but, respecting the decree as incontrovertible
hectare lot was erroneously included in Antonio’s free patent and no longer open to review, to bring an ordinary action in the
application which became the basis for the issuance of his OCT. It ordinary court of justice for reconveyance or, if the property has
then ordered the heirs of Antonio (the Paces [represented by Rosalia passed into the hands of an innocent purchaser for value, for
Pace (Rosalia)]) to reconvey said portion to Ciriaco. In so ruling, the damages. (Emphasis supplied.)
RTC acknowledged Ciriaco’s actual and exclusive possession,
cultivation, and claim of ownership over the subject lot which he
acquired from his father Sesinando, who occupied and improved the "If property is acquired through mistake or fraud, the person obtaining
lot way back in the early 1950s.7 it is, by force of law, considered a trustee of an implied trust for the
benefit of the person from whom the property comes."30 An action for
reconveyance based on implied trust prescribes in 10 years as it is an
The December 27, 1989 RTC Decision became final and executory obligation created by law,31 to be counted from the date of issuance
but the Deed of Conveyance8 issued in favor of Ciriaco could not be of the Torrens title over the property.32 This rule, however, applies
annotated on OCT No. P-4952 since said title was already cancelled. only when the plaintiff or the person enforcing the trust is not in
Apparently, Antonio and his wife Rosalia mortgaged Lot 13521 to possession of the property.1avvphi1
PNB as security for a series of loans dated February 25, 1971, April
26, 1972, and May 11, 1973.9 After Antonio and Rosalia failed to pay
their obligation, PNB foreclosed the mortgage on July 14, 198610 and In Vda. de Cabrera v. Court of Appeals,33 we said that there is no
title to Lot 13521 was transferred to PNB under Transfer Certificate prescription when in an action for reconveyance, the claimant is in
of Title (TCT) No.T-23063. actual possession of the property because this in effect is an action
for quieting of title:

Thus, in February 1996, Ciriaco filed the instant complaint against

PNB and the Paces for Declaration of Nullity of Mortgage, [S]ince if a person claiming to be the owner thereof is in actual
Foreclosure Sale, Reconveyance and Damages,11 docketed as Civil possession of the property, as the defendants are in the instant case,
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
66
the right to seek reconveyance, which in effect seeks to quiet title to ISSUE: Whether there is trust reslationship between Margarita and
the property, does not prescribe. The reason for this is that one who Roberto. And if there is, may the property involved be reconveyed to
is in actual possession of a piece of land claiming to be the owner Margarita.
thereof may wait until his possession is disturbed or his title is
attacked before taking steps to vindicate his right, the reason for the HELD: Yes on both.
rule being, that his undisturbed possession gives him a continuing
right to seek the aid of a court of equity to ascertain and determine
A trust is the legal relationship between one person having an
the nature of the adverse claim of a third party and its effect on his
equitable ownership of property and another person owning the legal
own title, which right can be claimed only by one who is in
title to such property, the equitable ownership of the former entitling
possession.34
him to the performance of certain duties and the exercise of certain
powers by the latter.30 Trusts are either express or implied.31 Express
In Ciriaco’s case, as it has been judicially established that he is in or direct trusts are created by the direct and positive acts of the
actual possession of the property he claims as his and that he has a parties, by some writing or deed, or will, or by oral declaration in
better right to the disputed portion, his suit for reconveyance is in words evincing an intention to create a trust.32 Implied trusts – also
effect an action for quieting of title. Hence, petitioner’s defense of called "trusts by operation of law," "indirect trusts" and "involuntary
prescription against Ciriaco does not lie. trusts" – arise by legal implication based on the presumed intention
of the parties or on equitable principles independent of the particular
intention of the parties.33 They are those which, without being
Estate of Cabacungan vs. Laigo, et. al.
expressed, are deducible from the nature of the transaction as
G.R. No. 175073, August 15, 2011
matters of intent or, independently of the particular intention of the
parties, as being inferred from the transaction by operation of law
FACTS: Margarita Cabacungan (Margarita) owned three parcels of basically by reason of equity.34
unregistered land in Paringao and in Baccuit, Bauang, La Union, each
measuring 4,512 square meters, 1,986 square meters and 3,454
square meters. The properties were individually covered by tax Implied trusts are further classified into constructive trusts and
declaration all in her name.5 Sometime in 1968, Margarita’s son, resulting trusts. Constructive trusts, on the one hand, come about in
Roberto Laigo, Jr. (Roberto), applied for a non-immigrant visa to the the main by operation of law and not by agreement or intention. They
United States, and to support his application, he allegedly asked arise not by any word or phrase, either expressly or impliedly, evincing
Margarita to transfer the tax declarations of the properties in his a direct intention to create a trust, but one which arises in order to
name.6 For said purpose, Margarita, unknown to her other children, satisfy the demands of justice.35 Also known as trusts ex maleficio,
executed an Affidavit of Transfer of Real Property whereby the subject trusts ex delicto and trusts de son tort, they are construed against
properties were transferred by donation to Roberto.7 Not long after, one who by actual or constructive fraud, duress, abuse of confidence,
Roberto’s visa was issued and he was able to travel to the U.S. as a commission of a wrong or any form of unconscionable conduct,
tourist and returned in due time. In 1979, he adopted respondents artifice, concealment of questionable means, or who in any way
Pedro Laigo (Pedro) and Marilou Laigo (Marilou),8 and then he against equity and good conscience has obtained or holds the legal
married respondent Estella Balagot. right to property which he ought not, in equity and good conscience,
hold and enjoy.36 They are aptly characterized as "fraud-rectifying
trust,"37 imposed by equity to satisfy the demands of justice38 and to
In July 1990, Roberto sold the properties to Spouses Campos. defeat or prevent the wrongful act of one of the parties.39 Constructive
Allegedly, these sales were not known to Margarita and her other trusts are illustrated in Articles 1450, 1454, 1455 and 1456.40
children.11

On the other hand, resulting trusts arise from the nature or

It was only in August 1995, at Roberto’s wake, that Margarita came circumstances of the consideration involved in a transaction whereby
to know of the sales as told by Pedro himself.12 In February 1996, one person becomes invested with legal title but is obligated in equity
Margarita, represented by her daughter, Luz, instituted the instant to hold his title for the benefit of another. This is based on the
complaint for the annulment of said sales and for the equitable doctrine that valuable consideration and not legal title is
recovery of ownership and possession of the subject properties determinative of equitable title or interest and is always presumed to
as well as for the cancellation of Ricardo’s tax declarations. have been contemplated by the parties.41 Such intent is presumed as
it is not expressed in the instrument or deed of conveyance and is to
Margarita admitted having accommodated Roberto’s request for the be found in the nature of their transaction.42 Implied trusts of this
transfer of the properties to his name, but pointed out that the nature are hence describable as "intention-enforcing trusts."43 Specific
arrangement was only for the specific purpose of supporting his U.S. examples of resulting trusts may be found in the Civil Code,
visa application. She emphasized that she never intended to divest particularly Articles 1448, 1449, 1451, 1452 and 1453.44
herself of ownership over the subject lands and, hence, Roberto had
no right to sell them to respondents and the Spouses Campos. She Articles 1448 to 1456 of the Civil Code enumerate cases of implied
likewise alleged that the sales, which were fictitious and simulated trust, but the list according to Article 1447 is not exclusive of others
considering the gross inadequacy of the stipulated price, were which may be established by the general law on trusts so long as the
fraudulently entered into by Roberto. limitations laid down in Article 1442 are observed,45 that is, that they
be not in conflict with the New Civil Code, the Code of Commerce, the
On February 3, 1999, prior to pre-trial, Margarita and the Spouses Rules of Court and special laws.46
Campos amicably entered into a settlement. Forthwith, trial on the
merits ensued with respect to Pedro and Marilou. While resulting trusts generally arise on failure of an express trust or
of the purpose thereof, or on a conveyance to one person upon a
The trial court rendered judgment dismissing the complaint which was consideration from another (sometimes referred to as a "purchase-
affirmed by the CA. The appellate court ruled: That there was no money resulting trust"), they may also be imposed in other
implied trust relation in the transaction between Margarita and circumstances such that the court, shaping judgment in its most
Roberto, nevertheless, it held that the ten-year prescriptive period efficient form and preventing a failure of justice, must decree the
under Article 1144 of the Civil Code, in relation to an implied trust existence of such a trust.47 A resulting trust, for instance, arises
created under Article 1456, had already been exhausted by Margarita where, there being no fraud or violation of the trust, the
because her cause of action had accrued way back in 1968; and that circumstances indicate intent of the parties that legal title in one be
while laches and prescription as defenses could have availed against held for the benefit of another.48 It also arises in some instances
Roberto, the same would be unavailing against Pedro and Marilou where the underlying transaction is without consideration, such as
because the latter were supposedly buyers in good faith and for value. that contemplated in Article 144949 of the Civil Code. Where property,
for example, is gratuitously conveyed for a particular purpose and that
purpose is either fulfilled or frustrated, the court may affirm the
resulting trust in favor of the grantor or transferor,50 where the
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
67
beneficial interest in property was not intended to vest in the
grantee.51 Article 1868
Chemphil vs. Court of Appeals
Intention – although only presumed, implied or supposed by law from
G.R. No. 112438-39, December 12, 1995
the nature of the transaction or from the facts and circumstances
accompanying the transaction, particularly the source of the
consideration – is always an element of a resulting trust52 and may be FACTS: On September 25, 1984, Dynetics, Inc. and Antonio M. Garcia
inferred from the acts or conduct of the parties rather than from direct filed a complaint for declaratory relief and/or injunction against the
expression of conduct.53 Certainly, intent as an indispensable element, PISO, BPI, LBP, PCIB and RCBC or the consortium with the Regional
is a matter that necessarily lies in the evidence, that is, by evidence, Trial Court of Makati, Branch 45 (Civil Case No. 8527), seeking
even circumstantial, of statements made by the parties at or before judicial declaration, construction and interpretation of the validity of
the time title passes.54 Because an implied trust is neither dependent the surety agreement that Dynetics and Garcia had entered into
upon an express agreement nor required to be evidenced by with the consortium.
writing,55 Article 145756 of our Civil Code authorizes the admission of
parole evidence to prove their existence. Parole evidence that is Seven months later, or on 23 April 1985, Dynetics, Antonio Garcia
required to establish the existence of an implied trust necessarily has and Matrix Management & Trading Corporation filed a
to be trustworthy and it cannot rest on loose, equivocal or indefinite complaint for declaratory relief and/or injunction against the
declarations.57 Security Bank & Trust Co. (SBTC case) before the Regional Trial
Court of Makati, Branch 135 docketed as Civil Case No. 10398.5
Thus, contrary to the Court of Appeals’ finding that there was no
evidence on record showing that an implied trust relation arose On 2 July 1985, the trial court granted SBTC's prayer for the issuance
between Margarita and Roberto, we find that petitioner before the of a writ of preliminary attachment and on 9 July 1985, a notice of
trial court, had actually adduced evidence to prove the intention of garnishment covering Garcia's shares in CIP/Chemphil
Margarita to transfer to Roberto only the legal title to the properties (including the disputed shares) was served on Chemphil
in question, with attendant expectation that Roberto would return the through its then President. The notice of garnishment was duly
same to her on accomplishment of that specific purpose for which the annotated in the stock and transfer books of Chemphil on the
transaction was entered into. The evidence of course is not same date.6
documentary, but rather testimonial.
In the meantime, on 12 July 1985, the Regional Trial Court in Civil
As a trustee of a resulting trust, therefore, Roberto, like the trustee of Case No. 8527 (the consortium case) denied the application of
an express passive trust, is merely a depositary of legal title having Dynetics and Garcia for preliminary injunction and instead granted the
no duties as to the management, control or disposition of the property consortium's prayer for a consolidated writ of preliminary attachment.
except to make a conveyance when called upon by the cestui que A writ of attachment was issued but this garnishment, however,
trust.63 Hence, the sales he entered into with respondents are a was not annotated in Chemphil's stock and transfer book.
wrongful conversion of the trust property and a breach of the trust.
The question is: May respondents now be compelled to reconvey the
On 25 March 1988, the Regional Trial Court dismissed the
subject properties to petitioner? We rule in the affirmative.
complaint of Dynetics and Garcia in Civil Case No. 8527.
Unsatisfied with the aforementioned order, the consortium appealed
Respondents posit that petitioner’s claim may never be enforced to the Court of Appeals, docketed as CA-G.R. CV No. 20467.
against them as they had purchased the properties from Roberto for
value and in good faith. They also claim that, at any rate, petitioner’s
On 17 January 1989 during the pendency of consortium's appeal in
cause of action has accrued way back in 1968 upon the execution of
CA-G.R. CV No. 20467, Antonio Garcia and the consortium entered
the Affidavit of Transfer and, hence, with the 28 long years that since
into a Compromise Agreement which the Court of Appeals approved
passed, petitioner’s claim had long become stale not only on account
on 22 May 1989 and became the basis of its judgment by compromise.
of laches, but also under the rules on extinctive prescription governing
Antonio Garcia was dropped as a party to the appeal leaving the
a resulting trust. We do not agree.
consortium to proceed solely against Dynetics, Inc.

xxxx
It appears that on 15 July 1988, Antonio Garcia under a Deed of Sale
transferred to Ferro Chemicals, Inc. (FCI) the disputed shares and
Second, the invocation of the rules on limitation of actions relative to other properties for P79,207,331.28. It was agreed upon that part of
a resulting trust is not on point because the resulting trust relation the purchase price shall be paid by FCI directly to SBTC for whatever
between Margarita and Roberto had been extinguished by the latter’s judgment credits that may be adjudged in the latter's favor and
death. A trust, it is said, terminates upon the death of the trustee, against Antonio Garcia in the aforementioned SBTC case.15
particularly where the trust is personal to him.65 Besides, prescription
and laches, in respect of this resulting trust relation, hardly can impair
On 6 March 1989, FCI, through its President Antonio M. Garcia, issued
petitioner’s cause of action. On the one hand, in accordance with
a Bank of America Check No. 860114 in favor of SBTC in the amount
Article 114466 of the Civil Code, an action for reconveyance to enforce
of P35,462,869.62. 16 SBTC refused to accept the check claiming that
an implied trust in one’s favor prescribes in ten (10) years from the
the amount was not sufficient to discharge the debt. The check was
time the right of action accrues, as it is based upon an obligation
thus consigned by Antonio Garcia and Dynetics with the Regional Trial
created by law.67 It sets in from the time the trustee performs
Court as payment of their judgment debt in the SBTC case.17
unequivocal acts of repudiation amounting to an ouster of the cestui
que trust which are made known to the latter.68 In this case, it was
the 1992 sale of the properties to respondents that comprised the act On 26 June 1989, FCI assigned its 4,119,614 shares in Chemphil,
of repudiation which, however, was made known to Margarita only in which included the disputed shares, to petitioner CEIC. The shares
1995 but nevertheless impelled her to institute the action in 1996 – were registered and recorded in the corporate books of Chemphil in
still well within the prescriptive period. Hardly can be considered as CEIC's name and the corresponding stock certificates were issued to
act of repudiation Roberto’s open court declaration which he made in it.18
the 1979 adoption proceedings involving respondents to the effect
that he owned the subject properties,69 nor even the fact that he in Meanwhile, Antonio Garcia, in the consortium case, failed to comply
1977 had entered into a lease contract on one of the disputed with the terms of the compromise agreement and as a result, on 18
properties which contract had been subject of a 1996 decision of the July 1989, the consortium filed a motion for execution which was
Court of Appeals.70 These do not suffice to constitute unequivocal acts granted by the trial court on 11 August 1989. Among Garcia's
in repudiation of the trust. properties that were levied upon on execution were his 1,717,678
shares in Chemphil (the disputed shares) previously garnished on 19
July 1985.19
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68
On 22 August 1989, the consortium acquired the disputed shares of (3) When, even without the knowledge of the
stock at the public auction sale conducted by the sheriff for debtor, a person interested in the fulfillment of
P85,000,000.00. 20 On same day, a Certificate of Sale covering the the obligation pays, without prejudice to the
disputed shares was issued to it. effects of confusion as to the latter's share.
(Emphasis ours.)
On 30 August 1989,21 the consortium filed a motion (dated 29 August
1989) to order the corporate secretary of Chemphil to enter in its Despite, however, its multitudinous arguments, CEIC presents an
stock and transfer books the sheriff's certificate of sale dated 22 erroneous interpretation of the concept of subrogation. An analysis of
August 1989, and to issue new certificates of stock in the name of the the situations involved would reveal the clear inapplicability of Art.
banks concerned. The trial court granted said motion in its order dated 1302 (2).
4 September 1989.
Antonio Garcia sold the disputed shares to FCI for a consideration of
On 26 September 1989, CEIC filed a motion to intervene (dated 25 P79,207,331.28. FCI, however, did not pay the entire amount to
September 1989) in the consortium case seeking the recall of the Garcia as it was obligated to deliver part of the purchase price directly
abovementioned order on grounds that it is the rightful owner of the to SBTC.
disputed shares.23 It further alleged that the disputed shares were
previously owned by Antonio M. Garcia but subsequently sold by him
Hence, when FCI issued the BA check to SBTC in the amount of
on 15 July 1988 to Ferro Chemicals, Inc. (FCI) which in turn assigned
P35,462,869.62 to pay Garcia's indebtedness to the said bank, it was
the same to CEIC in an agreement dated 26 June 1989.
in effect paying with Garcia's money, no longer with its own, because
said amount was part of the purchase price which FCI owed Garcia in
On 2 October 1989, the consortium filed their opposition to CEIC's payment for the sale of the disputed shares by the latter to the former.
motion for intervention alleging that their attachment lien over the The money "paid" by FCI to SBTC, thus properly belonged to Garcia.
disputed shares of stocks must prevail over the private sale in favor It is as if Garcia himself paid his own debt to SBTC but through a third
of the CEIC considering that said shares of stock were garnished in party — FCI.
the consortium's favor as early as 19 July 1985.
It is, therefore, of no consequence that what was used to pay SBTC
The trial court declared that the disputed shares belong to CEIC. This was a corporate check of FCI. As we have earlier stated, said check
decision was reversed by the CA. no longer represented FCI funds but Garcia's money, being as it was
part of FCI's payment for the acquisition of the disputed shares. The
FCI check should not be taken at face value, the attendant
ISSUE: Whether or not CEIC is the rightful owner of the disputed
circumstances must also be considered.
shares.

The aforequoted contractual stipulation in the Deed of Sale dated 15

HELD: No.
July 1988 between Antonio Garcia and FCI is nothing more but an
arrangement for the sake of convenience. Payment was to be effected
CEIC traces its claim over the disputed shares to the attachment lien
in the aforesaid manner so as to prevent money from changing hands
obtained by SBTC on 2 July 1985 against Antonio Garcia in Civil Case
needlessly. Besides, the very purpose of Garcia in selling the disputed
No. 10398. It avers that when FCI, CEIC's predecessor-in-interest,
shares and his other properties was to "settle certain civil suits filed
paid SBTC the due obligations of Garcia to the said bank pursuant to
against him."44
the Deed of Absolute Sale and Purchase of Shares of Stock,41 FCI, and
later CEIC, was subrogated to the rights of SBTC, particularly to the
latter's aforementioned attachment lien over the disputed shares. Since the money used to discharge Garcia's debt rightfully belonged
to him, FCI cannot be considered a third party payor under Art. 1302
(2). It was but a conduit, or as aptly categorized by respondents,
CEIC argues that SBTC's attachment lien is superior as it was obtained
merely an agent as defined in Art. 1868 of the Civil Code:
on 2 July 1985, ahead of the consortium's purported attachment on
19 July 1985. More importantly, said CEIC lien was duly recorded in
the stock and transfer books of Chemphil. Art. 1868. By the contract of agency a person
binds himself to render some service or to do
something in representation or on behalf of
CEIC's subrogation theory is unavailing.
another, with the consent or authority of the
latter.
By definition, subrogation is "the transfer of all the rights of the
creditor to a third person, who substitutes him in all his rights. It may
FCI was merely fulfilling its obligation under the aforementioned Deed
either be legal or conventional. Legal subrogation is that which takes
of Sale.
place without agreement but by operation of law because of certain
acts; this is the subrogation referred to in article 1302. Conventional
subrogation is that which takes place by agreement of the parties . . Filipinas Life vs. Pedroso, et. al.
."42 G.R. No. 159489, February 4, 2008

CEIC's theory is premised on Art. 1302 (2) of the Civil Code which FACTS: Respondent Teresita O. Pedroso is a policyholder of a 20-
states: year endowment life insurance issued by petitioner Filipinas Life
Assurance Company (Filipinas Life). Pedroso claims Renato Valle was
her insurance agent since 1972 and Valle collected her monthly
Art. 1302. It is presumed that there is legal premiums. In the first week of January 1977, Valle told her that the
subrogation: Filipinas Life Escolta Office was holding a promotional investment
program for policyholders. It was offering 8% prepaid interest a
(1) When a creditor pays another creditor who is month for certain amounts deposited on a monthly basis. Enticed, she
preferred, even without the debtor's knowledge; initially invested and issued a post-dated check dated January 7, 1977
for P10,000.4 In return, Valle issued Pedroso his personal check
for P800 for the 8%5 prepaid interest and a Filipinas Life "Agent’s
(2) When a third person, not interested in the Receipt" No. 807838.6
obligation, pays with the express or tacit approval
of the debtor;
Subsequently, she called the Escolta office and talked to Francisco
Alcantara, the administrative assistant, who referred her to the branch
manager, Angel Apetrior. Pedroso inquired about the promotional
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
69
investment and Apetrior confirmed that there was such a promotion. principal failed to adopt the needed measures to prevent
She was even told she could "push through with the check" she misrepresentation, much more so if the principal ratified his agent’s
issued. From the records, the check, with the endorsement of acts beyond the latter’s authority. The act of the agent is considered
Alcantara at the back, was deposited in the account of Filipinas Life that of the principal itself. Qui per alium facit per seipsum facere
with the Commercial Bank and Trust Company (CBTC), Escolta videtur. "He who does a thing by an agent is considered as doing it
Branch. himself."

Relying on the representations made by the petitioner’s duly Eurotech Industrial vs. Cuizon, et. al.
authorized representatives Apetrior and Alcantara, as well as having G.R. No. 167552, April 23, 2007
known agent Valle for quite some time, Pedroso waited for the
maturity of her initial investment. A month after, her investment FACTS: Petitioner is engaged in the business of importation and
of P10,000 was returned to her after she made a written request for distribution of various European industrial equipment for customers
its refund. To collect the amount, Pedroso personally went to the here in the Philippines. It has as one of its customers Impact Systems
Escolta branch where Alcantara gave her the P10,000 in cash. Sales ("Impact Systems") which is a sole proprietorship owned by
Pedroso made several investments. respondent ERWIN Cuizon (ERWIN). Respondent EDWIN is the sales
manager of Impact Systems and was impleaded in the court a quo in
said capacity.
When she went to Filipinas Life Escolta Office to collect their
respective investments, and to inquire why they had not seen Valle
for quite some time. But their attempts were futile. Hence, From January to April 1995, petitioner sold to Impact Systems various
respondents filed an action for the recovery of a sum of money. products allegedly amounting to ninety-one thousand three hundred
thirty-eight (₱91,338.00) pesos. Subsequently, respondents sought to
buy from petitioner one unit of sludge pump valued at ₱250,000.00
After trial, the RTC, Branch 3, Manila, held Filipinas Life and its co- with respondents making a down payment of fifty thousand pesos
defendants Valle, Apetrior and Alcantara jointly and solidarily liable to (₱50,000.00).4 When the sludge pump arrived from the United
the respondents. On appeal, the Court of Appeals affirmed the trial Kingdom, petitioner refused to deliver the same to respondents
court’s ruling. without their having fully settled their indebtedness to petitioner.
Thus, on 28 June 1995, respondent EDWIN and Alberto de Jesus,
Filipinas Life does not dispute that Valle was its agent, but claims that general manager of petitioner, executed a Deed of Assignment of
it was only a life insurance company and was not engaged in the receivables from Toledo Power Company in favor of petitioner.
business of collecting investment money. It contends that the Following the execution of the Deed of Assignment, petitioner
investment scheme offered to respondents by Valle, Apetrior and delivered to respondents the sludge pump as shown by Invoice No.
Alcantara was outside the scope of their authority as agents of 12034 dated 30 June 1995.8
Filipinas Life such that, it cannot be held liable to the respondents.11
Allegedly unbeknownst to petitioner, respondents, despite the
ISSUE: Whether or not Filipinas Life is liable. existence of the Deed of Assignment, proceeded to collect from
Toledo Power Company the amount of ₱365,135.29 as evidenced by
HELD: Yes. Check Voucher No. 09339 prepared by said power company and an
official receipt dated 15 August 1995 issued by Impact
It appears indisputable that respondents Pedroso and Palacio had Systems.10 Alarmed by this development, petitioner made several
invested P47,000 and P49,550, respectively. These were received by demands upon respondents to pay their obligations. Because of
Valle and remitted to Filipinas Life, using Filipinas Life’s official respondents’ failure to abide by said demand letter, petitioner
receipts, whose authenticity were not disputed. Valle’s authority to instituted a complaint for sum of money, damages, with application
solicit and receive investments was also established by the parties. for preliminary attachment against herein respondents before the
When respondents sought confirmation, Alcantara, holding a Regional Trial Court of Cebu City.12
supervisory position, and Apetrior, the branch manager, confirmed
that Valle had authority. While it is true that a person dealing with an By way of special and affirmative defenses, respondent EDWIN
agent is put upon inquiry and must discover at his own peril the alleged that he is not a real party in interest in this case. According to
agent’s authority, in this case, respondents did exercise due diligence him, he was acting as mere agent of his principal, which was the
in removing all doubts and in confirming the validity of the Impact Systems, in his transaction with petitioner and the latter was
representations made by Valle. very much aware of this fact.

Filipinas Life, as the principal, is liable for obligations contracted by its The trial court rendered its assailed Order dated 29 January 2002
agent Valle. By the contract of agency, a person binds himself to dropping respondent EDWIN as a party defendant in this case. The
render some service or to do something in representation or on behalf CA affirmed the decision of the trial court.
of another, with the consent or authority of the latter.12 The general
rule is that the principal is responsible for the acts of its agent done
within the scope of its authority, and should bear the damage caused ISSUE: Whether or not Edwin is merely an agent of Erwin.
to third persons.13 When the agent exceeds his authority, the agent
becomes personally liable for the damage.14 But even when the agent HELD: Yes.
exceeds his authority, the principal is still solidarily liable together with
the agent if the principal allowed the agent to act as though the agent In a contract of agency, a person binds himself to render some service
had full powers.15 In other words, the acts of an agent beyond the or to do something in representation or on behalf of another with the
scope of his authority do not bind the principal, unless the principal latter’s consent.29 The underlying principle of the contract of agency
ratifies them, expressly or impliedly.16 Ratification in agency is the is to accomplish results by using the services of others – to do a great
adoption or confirmation by one person of an act performed on his variety of things like selling, buying, manufacturing, and
behalf by another without authority.17 transporting.30 Its purpose is to extend the personality of the principal
or the party for whom another acts and from whom he or she derives
the authority to act.31 It is said that the basis of agency is
Filipinas Life cannot profess ignorance of Valle’s acts. Even if Valle’s representation, that is, the agent acts for and on behalf of the
representations were beyond his authority as a debit/insurance agent, principal on matters within the scope of his authority and said acts
Filipinas Life thru Alcantara and Apetrior expressly and knowingly have the same legal effect as if they were personally executed by the
ratified Valle’s acts. It cannot even be denied that Filipinas Life principal.32 By this legal fiction, the actual or real absence of the
benefited from the investments deposited by Valle in the account of principal is converted into his legal or juridical presence – qui facit per
Filipinas Life. In our considered view, Filipinas Life had clothed Valle alium facit per se.33
with apparent authority; hence, it is now estopped to deny said
authority. Innocent third persons should not be prejudiced if the
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70
The elements of the contract of agency are: (1) consent, express or the agent himself becomes liable to a third party when he expressly
implied, of the parties to establish the relationship; (2) the object is binds himself or he exceeds the limits of his authority without giving
the execution of a juridical act in relation to a third person; (3) the notice of his powers to the third person. However, it must be pointed
agent acts as a representative and not for himself; (4) the agent acts out that in case of excess of authority by the agent, like what
within the scope of his authority.34 petitioner claims exists here, the law does not say that a third person
can recover from both the principal and the agent.
In this case, the parties do not dispute the existence of the agency
relationship between respondents ERWIN as principal and EDWIN as Banate, et. al. vs. Philippine Countryside Rural Bank
agent. The only cause of the present dispute is whether respondent G.R. No. 163825, July 13, 2010
EDWIN exceeded his authority when he signed the Deed of
Assignment thereby binding himself personally to pay the obligations FACTS: On July 22, 1997, petitioner spouses Rosendo Maglasang and
to petitioner. Petitioner firmly believes that respondent EDWIN acted Patrocinia Monilar (spouses Maglasang) obtained a loan (subject loan)
beyond the authority granted by his principal and he should therefore from PCRB for ₱1,070,000.00. The subject loan was evidenced by a
bear the effect of his deed pursuant to Article 1897 of the New Civil promissory note and was payable on January 18, 1998. To secure the
Code. payment of the subject loan, the spouses Maglasang executed, in
favor of PCRB a real estate mortgage over their property, Lot 12868-
We disagree. H-3-C, 6 including the house constructed thereon (collectively referred
to as subject properties), owned by petitioners Mary Melgrid and
Bonifacio Cortel (spouses Cortel), the spouses Maglasang’s daughter
Article 1897 reinforces the familiar doctrine that an agent, who acts and son-in-law, respectively. Aside from the subject loan, the spouses
as such, is not personally liable to the party with whom he contracts. Maglasang obtained two other loans from PCRB which were covered
The same provision, however, presents two instances when an agent by separate promissory notes7 and secured by mortgages on their
becomes personally liable to a third person. The first is when he other properties.
expressly binds himself to the obligation and the second is when he
exceeds his authority. In the last instance, the agent can be held liable
if he does not give the third party sufficient notice of his powers. We Sometime in November 1997 (before the subject loan became due),
hold that respondent EDWIN does not fall within any of the exceptions the spouses Maglasang and the spouses Cortel asked PCRB’s
contained in this provision. permission to sell the subject properties. They likewise requested that
the subject properties be released from the mortgage since the two
other loans were adequately secured by the other mortgages. The
The Deed of Assignment clearly states that respondent EDWIN signed spouses Maglasang and the spouses Cortel claimed that the PCRB,
thereon as the sales manager of Impact Systems. As discussed acting through its Branch Manager, Pancrasio Mondigo, verbally
elsewhere, the position of manager is unique in that it presupposes agreed to their request but required first the full payment of
the grant of broad powers with which to conduct the business of the the subject loan. The spouses Maglasang and the spouses
principal, thus: Cortel thereafter sold to petitioner Violeta Banate the subject
properties for ₱1,750,000.00. The spouses Magsalang and the
The powers of an agent are particularly broad in the case of one acting spouses Cortel used the amount to pay the subject loan with PCRB.
as a general agent or manager; such a position presupposes a degree After settling the subject loan, PCRB gave the owner’s duplicate
of confidence reposed and investiture with liberal powers for the certificate of title of Lot 12868-H-3-C to Banate, who was able to
exercise of judgment and discretion in transactions and concerns secure a new title in her name. The title, however, carried the
which are incidental or appurtenant to the business entrusted to his mortgage lien in favor of PCRB, prompting the petitioners to request
care and management. In the absence of an agreement to the from PCRB a Deed of Release of Mortgage. As PCRB refused to comply
contrary, a managing agent may enter into any contracts that he with the petitioners’ request, the petitioners instituted an action for
deems reasonably necessary or requisite for the protection of the specific performance before the RTC to compel PCRB to
interests of his principal entrusted to his management. x x x.35 execute the release deed.

Applying the foregoing to the present case, we hold that Edwin Cuizon After trial, the RTC ruled in favor of the petitioners. On appeal, the CA
acted well-within his authority when he signed the Deed of reversed the RTC’s decision. The CA did not consider as valid the
Assignment. To recall, petitioner refused to deliver the one unit of petitioners’ new agreement with Mondigo, which would novate the
sludge pump unless it received, in full, the payment for Impact original mortgage contract containing the cross-collateral stipulation.
Systems’ indebtedness.36 We may very well assume that Impact It ruled that Mondigo cannot orally amend the mortgage contract
Systems desperately needed the sludge pump for its business since between PCRB, and the spouses Maglasang and the spouses Cortel;
after it paid the amount of fifty thousand pesos (₱50,000.00) as down therefore, the claimed commitment allowing the release of the
payment on 3 March 1995,37 it still persisted in negotiating with mortgage on the subject properties cannot bind PCRB.
petitioner which culminated in the execution of the Deed of
Assignment of its receivables from Toledo Power Company on 28 June ISSUE: Whether the purported agreement between the petitioners
1995.38 The significant amount of time spent on the negotiation for and Mondigo novated the mortgage contract over the subject
the sale of the sludge pump underscores Impact Systems’ properties and is thus binding upon PCRB.
perseverance to get hold of the said equipment. There is, therefore,
no doubt in our mind that respondent EDWIN’s participation in the HELD: No.
Deed of Assignment was "reasonably necessary" or was required in
order for him to protect the business of his principal. Had he not acted
in the way he did, the business of his principal would have been Notably, the petitioners’ action for specific performance is premised
adversely affected and he would have violated his fiduciary relation on the supposed actual or apparent authority of the branch manager,
with his principal. Mondigo, to release the subject properties from the mortgage,
although the other obligations remain unpaid. In light of our
discussion above, proof of the branch manager’s authority becomes
We likewise take note of the fact that in this case, petitioner is seeking indispensable to support the petitioners’ contention. The petitioners
to recover both from respondents ERWIN, the principal, and EDWIN, make no claim that Mondigo had actual authority from PCRB, whether
the agent. It is well to state here that Article 1897 of the New Civil express or implied. Rather, adopting the trial court’s observation, the
Code upon which petitioner anchors its claim against respondent petitioners posited that PCRB should be held liable for Mondigo’s
EDWIN "does not hold that in case of excess of authority, both the commitment, on the basis of the latter’s apparent authority.
agent and the principal are liable to the other contracting party."39 To
reiterate, the first part of Article 1897 declares that the principal is
liable in cases when the agent acted within the bounds of his We disagree with this position.
authority. Under this, the agent is completely absolved of any liability.
The second part of the said provision presents the situations when
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
71
Under the doctrine of apparent authority, acts and contracts of the 1. PAGCOR will provide ABS Corporation with separate
agent, as are within the apparent scope of the authority conferred on junket chips. The junket chips will be distinguished from the
him, although no actual authority to do such acts or to make such chips being used by other players in the gaming tables.
contracts has been conferred, bind the principal.20 The principal’s
liability, however, is limited only to third persons who have been led
ABS Corporation will distribute these junket chips to its
reasonably to believe by the conduct of the principal that such actual
players and at the end of the playing period, ABS
authority exists, although none was given. In other words, apparent
Corporation will collect the junket chips from its players and
authority is determined only by the acts of the principal and not by
make an accounting to the casino treasury.
the acts of the agent.21 There can be no apparent authority of an
agent without acts or conduct on the part of the principal; such acts
or conduct must have been known and relied upon in good faith as a 2. ABS Corporation will assume sole responsibility to pay
result of the exercise of reasonable prudence by a third party as the winnings of its foreign players and settle the collectibles
claimant, and such acts or conduct must have produced a change of from losing players.
position to the third party’s detriment.22
3. ABS Corporation shall hold PAGCOR absolutely free and
In the present case, the decision of the trial court was utterly silent harmless from any damage, claim or liability which may
on the manner by which PCRB, as supposed principal, has "clothed" arise from any cause in connection with the Junket
or "held out" its branch manager as having the power to enter into an Agreement.
agreement, as claimed by petitioners. No proof of the course of
business, usages and practices of the bank about, or knowledge that 5. In providing the gaming facilities and services to these
the board had or is presumed to have of, its responsible officers’ acts foreign players, PAGCOR is entitled to receive from ABS
regarding bank branch affairs, was ever adduced to establish the Corporation a 12.5% share in the gross winnings of ABS
branch manager’s apparent authority to verbally alter the terms of Corporation or 1.5 million US dollars, whichever is higher,
mortgage contracts.23 Neither was there any allegation, much less over a playing period of 6 months. PAGCOR has the option
proof, that PCRB ratified Mondigo’s act or is estopped to make a to extend the period.6
contrary claim.24

Petitioner, a Korean national, alleges that from November 1996 to

Further, we would be unduly stretching the doctrine of apparent March 1997, he came to the Philippines four times to play for high
authority were we to consider the power to undo or nullify solemn stakes at the Casino Filipino.7 Petitioner claims that in the course of
agreements validly entered into as within the doctrine’s ambit. the games, he was able to accumulate gambling chips worth US$2.1
Although a branch manager, within his field and as to third persons, million. Petitioner presented as evidence during the trial gambling
is the general agent and is in general charge of the corporation, with chips with a face value of US$1.1 million. Petitioner contends that
apparent authority commensurate with the ordinary business when he presented the gambling chips for encashment with PAGCOR’s
entrusted him and the usual course and conduct thereof,25 yet the employees or agents, PAGCOR refused to redeem them.8
power to modify or nullify corporate contracts remains generally in
the board of directors.26 Being a mere branch manager alone is
insufficient to support the conclusion that Mondigo has been clothed Petitioner brought an action against PAGCOR seeking the redemption
with "apparent authority" to verbally alter terms of written contracts, of gambling chips valued at US$2.1 million. Petitioner claims that he
especially when viewed against the telling circumstances of this case: won the gambling chips at the Casino Filipino, playing continuously
the unequivocal provision in the mortgage contract; PCRB’s vigorous day and night. Petitioner alleges that every time he would come to
denial that any agreement to release the mortgage was ever entered Manila, PAGCOR would extend to him amenities deserving of a high
into by it; and, the fact that the purported agreement was not even roller.
reduced into writing considering its legal effects on the parties’
interests. To put it simply, the burden of proving the authority of PAGCOR claims that petitioner, who was brought into the Philippines
Mondigo to alter or novate the mortgage contract has not been by ABS Corporation, is a junket player who played in the dollar pit
established.27 exclusively leased by ABS Corporation for its junket players. PAGCOR
alleges that it provided ABS Corporation with distinct junket chips.
It is a settled rule that persons dealing with an agent are bound at ABS Corporation distributed these chips to its junket players. At the
their peril, if they would hold the principal liable, to ascertain not only end of each playing period, the junket players would surrender the
the fact of agency but also the nature and extent of the agent’s chips to ABS Corporation. Only ABS Corporation would make an
authority, and in case either is controverted, the burden of proof is accounting of these chips to PAGCOR’s casino treasury.10
upon them to establish it.28 As parties to the mortgage contract, the
petitioners are expected to abide by its terms. The subsequent As additional information for the junket players playing in the gaming
purported agreement is of no moment, and cannot prejudice PCRB, room leased to ABS Corporation, PAGCOR posted a notice written in
as it is beyond Mondigo’s actual or apparent authority, as above English and Korean languages which reads:
discussed.

NOTICE
Article 1869
This GAMING ROOM is exclusively operated by ABS under
Yun Kwan Byung vs. PAGCOR arrangement with PAGCOR, the former is solely accountable for all
G.R. No. 163553, December 11, 2009 PLAYING CHIPS wagered on the tables. Any financial
ARRANGEMENT/TRANSACTION between PLAYERS and ABS shall only
FACTS: PAGCOR is a government-owned and controlled corporation be binding upon said PLAYERS and ABS.11
tasked to establish and operate gambling clubs and casinos as a
means to promote tourism and generate sources of revenue for the PAGCOR claims that this notice is a standard precautionary
government. Pursuant to this authority, PAGCOR launched its Foreign measure12 to avoid confusion between junket players of ABS
Highroller Marketing Program (Program). The Program aims to invite Corporation and PAGCOR’s players.
patrons from foreign countries to play at the dollar pit of designated
PAGCOR-operated casinos.
PAGCOR argues that petitioner is not a PAGCOR player because under
PAGCOR’s gaming rules, gambling chips cannot be brought outside
The Korean-based ABS Corporation was one of the international the casino. The gambling chips must be converted to cash at the end
groups that availed of the Program. ABS Corporation agreed to bring of every gaming period as they are inventoried every shift. Under
in foreign players to play at the five designated gaming tables of the PAGCOR’s rules, it is impossible for PAGCOR players to accumulate
Casino Filipino Silahis at the Grand Boulevard Hotel in Manila (Casino
Filipino). The relevant stipulations of the Junket Agreement state:
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72
two million dollars worth of gambling chips and to bring the chips out 5. PAGCOR enforced, through its own manager, all the rules
of the casino premises.13 and regulations on the operation of the gambling pit used
by ABS Corporation.57
Since PAGCOR disclaimed liability for the winnings of players recruited
by ABS Corporation and refused to encash the gambling chips, Petitioner’s argument is clearly misplaced. The basis for agency is
petitioner filed a complaint for a sum of money before the trial representation,58 that is, the agent acts for and on behalf of the
court.14 PAGCOR filed a counterclaim against petitioner. Then, trial principal on matters within the scope of his authority and said acts
ensued. have the same legal effect as if they were personally executed by the
principal.59 On the part of the principal, there must be an actual
intention to appoint or an intention naturally inferable from his words
On 6 May 1999, the trial court dismissed the complaint which was
or actions, while on the part of the agent, there must be an intention
affirmed by the CA.
to accept the appointment and act on it.60 Absent such mutual intent,
there is generally no agency.61
ISSUE: Whether or not there is agency between PAGCOR and ABS.
There is no implied agency in this case because PAGCOR did not hold
out to the public as the principal of ABS Corporation. PAGCOR’s
HELD: No.
actions did not mislead the public into believing that an agency can
be implied from the arrangement with the junket operators, nor did it
Article 1869 of the Civil Code states that implied agency is derived
hold out ABS Corporation with any apparent authority to represent it
from the acts of the principal, from his silence or lack of action, or his
in any capacity. The Junket Agreement was merely a contract of lease
failure to repudiate the agency, knowing that another person is acting
of facilities and services.
on his behalf without authority. Implied agency, being an actual
agency, is a fact to be proved by deductions or inferences from other
facts.47 Article 1874
On the other hand, apparent authority is based on estoppel and can
arise from two instances. First, the principal may knowingly permit Estate of Olaguer vs. Ongjoco
the agent to hold himself out as having such authority, and the G.R. No. 173312, August 26, 2008
principal becomes estopped to claim that the agent does not have
such authority. Second, the principal may clothe the agent with the FACTS: There are several lots involved in this case: Lot No. 1 with an
indicia of authority as to lead a reasonably prudent person to believe area of 186 square meters and Lot No. 2 with an area of 185 square
that the agent actually has such authority.48 In an agency by estoppel, meters. Also lots 76-D, 76-E, 76-F, 76-G are also subject of this
there is no agency at all, but the one assuming to act as agent has controversy.
apparent or ostensible, although not real, authority to represent
another.49 On January 15, 1976, Jose A. Olaguer claiming to be the attorney-in-
fact of his son Virgilio Olaguer under a general power of attorney,
The law makes no presumption of agency and proving its sold Lot No. 1 to defendant Emiliano M. [Ongjoco] for 10,000 Pesos
existence, nature and extent is incumbent upon the person per the deed of absolute sale notarized by Otilio Sy Bongon. (Exhibit
alleging it.50 Whether or not an agency has been created is a "H") The alleged general power of attorney however was not
question to be determined by the fact that one represents and is presented or marked nor formally offered in evidence.
acting for another. 51
On September 7, 1976, Jose A. Olaguer again claiming to be the
Acts and conduct of PAGCOR negates the existence of an implied attorney-in-fact of Virgilio Olaguer under the same general power of
agency or an agency by estoppel attorney referred to in the deed of absolute sale of Lot 1, sold Lot
No. 2 to Emiliano M. [Ongjoco] for 10,000 Pesos.
Petitioner alleges that there is an implied agency. Alternatively,
petitioner claims that even assuming that no actual agency existed On different dates, Jose A. Olaguer as attorney-in-fact of Virgilio
between PAGCOR and ABS Corporation, there is still an agency by Olaguer under a general power of attorney Doc. No. 378, Page No.
estoppel based on the acts and conduct of PAGCOR showing apparent 76, Book No. 14, Series of 1978 sold Lot No. 76-D, 76-E, 76-F, 76-
authority in favor of ABS Corporation. Petitioner states that one factor G to Emiliano M. [Ongjoco]
which distinguishes agency from other legal precepts is control and
the following undisputed facts show a relationship of implied agency: Thus, on 28 January 1980, the Estate of Lino Olaguer represented by
the legitimate children of the spouses Lino Olaguer and defendant
1. Three floors of the Grand Boulevard Hotel52 were leased Olivia P. Olaguer, namely, Sor Mary Edith Olaguer, Aurora O. de
to PAGCOR for conducting gambling operations;53 Guzman, Clarissa O. Trinidad, Lina Olaguer and Ma. Linda O.
Montayre, as attorney-in-fact and in her own behalf, filed an action
for the Annulment of Sales of Real Property and/or
2. Of the three floors, PAGCOR allowed ABS Corporation to Cancellation of Titles6 in the then Court of First Instance of
use one whole floor for foreign exchange gambling, Albay.7
conducted by PAGCOR dealers using PAGCOR facilities,
operated by PAGCOR employees and using PAGCOR chips
bearing the PAGCOR logo;54 ISSUE: Whether the sales to respondent was valid.

HELD: Some are valid and others are not.

3. PAGCOR controlled the release, withdrawal and return of
all the gambling chips given to ABS Corporation in that part According to the provisions of Article 187435 of the Civil Code on
of the casino and at the end of the day, PAGCOR conducted Agency, when the sale of a piece of land or any interest therein is
an inventory of the gambling chips;55 made through an agent, the authority of the latter shall be in writing.
Absent this requirement, the sale shall be void. Also, under Article
4. ABS Corporation accounted for all gambling chips with 1878,36 a special power of attorney is necessary in order for an agent
the Commission on Audit (COA), the official auditor of to enter into a contract by which the ownership of an immovable
PAGCOR;56 property is transmitted or acquired, either gratuitously or for a
valuable consideration.
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73
We note that the resolution of this case, therefore, hinges on the and void because the registered owners and their heirs did not
existence of the written power of attorney upon which respondent authorize Atanacio to sell their undivided shares in the
Ongjoco bases his good faith. subject lots in favor of CAA; that no actual consideration was paid
to the said registered owners or their heirs, despite promises that they
would be paid; that the deed of absolute sale did not bear the
When Lots Nos. 1 and 2 were sold to respondent Ongjoco through
signature of the CAA representative.
Jose A. Olaguer, the Transfer Certificates of Title of said properties
were in Virgilio’s name.37 Unfortunately for respondent, the power of
In its Answer,28 MCIAA averred that on April 3, 1958, Atanacio, acting
attorney that was purportedly issued by Virgilio in favor of Jose
as the representative of the heirs of Eugenio Godinez, who were the
Olaguer with respect to the sale of Lots Nos. 1 and 2 was never
registered owners, sold Lot No. 4810-A and Lot No. 4810-B to the
presented to the trial court. Neither was respondent able to explain
Republic of the Philippines, represented by CAA. Thereafter, CAA took
the omission. Other than the self-serving statement of respondent, no
possession of the said property upon payment of the purchase price.
evidence was offered at all to prove the alleged written power of
To corroborate the said transaction, on September 17, 1969,
attorney. This of course was fatal to his case.
Atanacio, along with other former registered co-owners, signed a
deed of partition attesting to the fact of sale of the two lots in favor
As it stands, there is no written power of attorney to speak of. The of the government and admitted its absolute right over the same.
trial court was thus correct in disregarding the claim of its existence. Since then, the said lots had been in the possession of the Republic
Accordingly, respondent Ongjoco’s claim of good faith in the sale of in the concept of an owner.
Lots Nos. 1 and 2 has no leg to stand on.
On Marc 3, 2006, the RTC rendered judgment in favor of Unchuan.
As regards Lots Nos. 76-D, 76-E, 76-F and 76-G, Ongjoco was able to The RTC held that Atanacio was not legally authorized to act as the
present a general power of attorney that was executed by Virgilio attorney-in-fact of his brothers and sisters and to transact on their
Olaguer. While the law requires a special power of attorney, the behalf because he was not clothed with a special power of attorney
general power of attorney was sufficient in this case, as Jose A. granting him authority to sell the disputed lots. "This lack of authority
Olaguer was expressly empowered to sell any of Virgilio’s properties; of Atanacio Godinez, therefore, has an effect of making the contract
and to sign, execute, acknowledge and deliver any agreement of sale between the parties' predecessors-in-interest as void. The CA
therefor.38 Even if a document is designated as a general power of affirmed the RTC decision.
attorney, the requirement of a special power of attorney is met if there
is a clear mandate from the principal specifically authorizing the The OSG argues that "the mere absence of a special power of attorney
performance of the act.39 The special power of attorney can be in favor of Atanacio Godinez does not necessarily mean that he was
included in the general power when the act or transaction for which not authorized by his co-owners who even authorized and represented
the special power is required is specified therein.40 to CAA that Atanacio Godinez was their attorney-in-fact."40 "Even
granting for the sake of argument that Atanacio Godinez was not in
fact authorized by the other registered co-owners to execute a deed
On its face, the written power of attorney contained the signature of conveying Lot Nos. 4810-A and 4810-B to CAA, such defect has
Virgilio Olaguer and was duly notarized. As such, the same is nevertheless been cured when his co-owners subsequently executed
considered a public document and it has in its favor the presumption on September 17, 1969 a public document denominated as Deed of
of authenticity and due execution, which can only be contradicted by Partition."41
clear and convincing evidence.41
ISSUE: Whether or not the Sales made by Atanacio was valid.
No evidence was presented to overcome the presumption in favor of
the duly notarized power of attorney. Neither was there a showing of HELD: No.
any circumstance involving the said document that would arouse the
suspicion of respondent and spur him to inquire beyond its four The Court finds that the sale transaction executed between Atanacio,
corners, in the exercise of that reasonable degree of prudence acting as an agent of his fellow registered owners, and the CAA was
required of a man in a similar situation. We therefore rule that indeed void insofar as the other registered owners were concerned.
respondent Ongjoco had every right to rely on the power of attorney They were represented without a written authority from them clearly
in entering into the contracts of sale of Lots Nos. 76-D to 76-G with in violation of the requirement under Articles 1874 and 1878 of the
Jose A. Olaguer. Civil Code, which provide:

Art. 1874. When a sale of a piece of land or any interest therein is

MIAA vs. Unchuan through an agent, the authority of the latter shall be in writing;
G.R. No. 182537, June 1, 2016 otherwise, the sale shall be void.

FACTS: On March 5, 2004, respondent Richard Unchuan (Unchuan) Art. 1878. Special powers of attorney are necessary in the following
filed a complaint for Partial Declaration of Nullity of the Deed of cases:
Absolute Sale with Plea for Partition, Damages and Attorney's Fees
before the RTC against MCIAA.5 Unchuan later filed an Amended x x x
Complaint for Declaration of Nullity of Deed of Absolute Sale,
Quieting of Title and/or Payment of Just Compensation, (5) To enter into any contract by which the ownership of an
Rental and Damages and Attorney's Fees by respondent immovable is transmitted or acquired either gratuitously or for a
against petitioner. valuable consideration;

In his complaint, Unchuan alleged, among others, that he was the xxx
legal and rightful owner of Lot No. 4810-A, with an area of 177,176
square meters, and Lot No. 4810-B, with an area of 2,740 square The significance of requiring the authority of an agent to be put into
meters, both located in Barrio Buaya, Lapu-Lapu City, and covered by writing was amplified in Dizon v. Court of Appeals:49
Original Certificate of Title (OCT) No. R0-1173;7 that the title was
registered under the names of the heirs of Eugenio Godinez; and that When the sale of a piece of land or any interest thereon is through an
he bought the two lots from the surviving heirs of the agent, the authority of the latter shall be in writing; otherwise, the
registered owners through several deeds of absolute sale, all sale shall be void. Thus the authority of an agent to execute a contract
dated December 7, 1998.9 for the sale of real estate must be conferred in writing and must give
him specific authority, either to conduct the general business of the
Unchuan further alleged that he came to know that Atanacio Godinez principal or to execute a binding contract containing terms and
(Atanacio), the supposed attorney-in-fact of all the registered owners conditions which are in the contract he did execute. A special power
and their heirs, already sold both lots to Civil Aeronautics of attorney is necessary to enter into any contract by which the
Administration (CAA),19 the predecessor of MCIAA; that the sale ownership of an immovable is transmitted or acquired either
covered by the Deed of Absolute Sale,20 dated April 3, 1958, was null gratuitously or for a valuable consideration. The express mandate
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
74
required by law to enable an appointee of an agency (couched) in Exchange Commission. According to Antonio, Lee asked her if they
general terms to sell must be one that expressly mentions a sale or had already received their commission. She answered "no," and Lee
that includes a sale as a necessary ingredient of the act mentioned. expressed surprise over this.9
For the principal to confer the right upon an agent to sell real estate,
a power of attorney must so express the powers of the agent in clear
A Deed of Sale was eventually executed on November 6, 1986
and unmistakable language. When there is any reasonable doubt that
between the bank, represented by its President/General Manager
the language so used conveys such power, no such construction shall
Teresa M. Ganzon (as Vendor) and KGB Farms, Inc., represented by
be given the document.
Dominador Lee (as Vendee), for the purchase price of
Without a special power of attorney specifying his authority to dispose ₱1,200,000.00.10 Since the sale of the property was consummated,
of an immovable, Atanacio could not be legally considered as the the respondents asked from the petitioners their commission, or 5%
representative of the other registered co-owners of the properties in of the purchase price. The petitioners refused to pay and offered a
question. Atanacio's act of conveying Lot No. 4810-A and Lot No. measly sum of ₱5,000.00 each.11 Hence, the respondents were
4810-B cannot be a valid source of obligation to bind all the other constrained to file an action against herein petitioners.
registered co-owners and their heirs because he was not clothed with
any authority to enter into a contract with CAA. The other heirs could The petitioners alleged that Medrano issued the letter of authority in
not have given their consent as required under Article 1475 50 of the favor of all the respondents, upon the representation of Flor that she
New Civil Code because there was no meeting of the minds among had a prospective buyer. Flor was the only person known to Medrano,
the other registered co-owners who gave no written authority to and he had never met Borbon and Antonio. Medrano had asked that
Atanacio to transact on their behalf. Therefore, no contract was the name of their prospective buyer be immediately registered so as
perfected insofar as the portions or shares of the other registered co- to avoid confusion later on, but Flor failed to do so. Furthermore, the
owners or their heirs were concerned. other officers of the bank had never met nor dealt with the
respondents in connection with the sale of the property.
Thus, the Court cannot give any weight either to the Deed of Partition
of Lot No. 4810, Open Cadastre51 (subsequently executed by all the
heirs of Ambrosio and Sotera Godinez to the effect that they had The trial court ruled in favor of the respondets declaring that they are
acknowledged52 the sale of the subject lots in favor of CAA) or to other entitled to the 5% commission. This was affirmed in toto by the CA.
documents (such as Joint Affidavit of Confirmation of Sale of Alloted
Shares Already Adjudicated and Quitclaim of a Portion of Lot No. ISSUE: Whether private respondents are entitled to commission.
4810, Open Cadastre)53 all of which gave the impression that they had
ratified54 the sale of the subject lots in favor of CAA, MCIAA's HELD: Yes.
predecessor-in-interest.
The records disclose that respondent Pacita Borbon is a licensed real
The rule is that a void contract produces no effect either against or in estate broker23 and respondents Josefina Antonio and Estela A. Flor
favor of anyone and cannot be ratified.55 Similarly, laches will not set are her associates.24 A broker is generally defined as one who is
in against a void transaction, as in this case, where the agent did not engaged, for others, on a commission, negotiating contracts relative
have a special power of attorney to dispose of the lots co-owned by to property with the custody of which he has no concern; the
the other registered owners. In fact, Article 1410 of the Civil Code negotiator between other parties, never acting in his own name but
specifically provides that an action to declare the inexistence of a void in the name of those who employed him; he is strictly a middleman
contract does not prescribe. and for some purposes the agent of both parties. A broker is one
whose occupation is to bring parties together, in matters of trade,
Medrano vs. Court of Appeals commerce or navigation.25 For the respondents’ participation in
G.R. No. 150678, February 18, 20005 finding a buyer for the petitioners’ property, the petitioners refuse to
pay them commission, asserting that they are not the efficient
FACTS: Bienvenido R. Medrano was the Vice-Chairman of Ibaan Rural procuring cause of the sale, and that the letter of authority signed by
Bank, a bank owned by the Medrano family. In 1986, Mr. Medrano petitioner Medrano is not binding against the petitioners.
asked Mrs. Estela Flor, a cousin-in-law, to look for a buyer of a
foreclosed asset of the bank,3 a 17-hectare mango plantation priced
"Procuring cause" is meant to be the proximate cause.26 The term
at ₱2,200,000.00, located in Ibaan, Batangas.4
"procuring cause," in describing a broker’s activity, refers to a
cause originating a series of events which, without break in their
On September 3, 1986, Medrano issued the Letter of Authority to continuity, result in accomplishment of prime objective of the
private respondents to look for buyer for the mango plantation with employment of the broker – producing a purchaser ready, willing and
5%. able to buy real estate on the owner’s terms.27 A broker will be
regarded as the "procuring cause" of a sale, so as to be entitled to
The respondents found Dominador Lee who was interested to buy a commission, if his efforts are the foundation on which the negotiations
mango plantation and arranged for an ocular inspection of the resulting in a sale are begun.28 The broker must be the efficient agent
property together with Lee which never materialized – the first time or the procuring cause of the sale. The means employed by him and
was due to inclement weather; the next time, no car was available for his efforts must result in the sale. He must find the purchaser, and
the tripping to Batangas.7 Lee then called up Borbon and told her that the sale must proceed from his efforts acting as broker.29
he was on his way to Lipa City to inspect another property, and might
as well also take a look at the property Borbon was offering. Since Indeed, the evidence on record shows that the respondents were
Lee was in a hurry, the respondents could no longer accompany him instrumental in the sale of the property to Lee. Without their
at the time. Thus, he asked for the exact address of the property and intervention, no sale could have been consummated. They
the directions on how to reach the lot in Ibaan from Lipa City. were the ones who set the sale of the subject land in motion.30 Upon
Thereupon, Lee was instructed to get in touch with Medrano’s being informed by Flor that Medrano was selling his mango orchard,
daughter and also an officer of the bank, Mrs. Teresa Ganzon, Borbon lost no time in informing Lee that they had found a property
regarding the property.8 according to his specifications. An ocular inspection of the property
together with Lee was immediately planned; unfortunately, it never
Two days after the visit, respondent Josefina Antonio called Lee to pushed through for reasons beyond the respondents’ control. Since
inquire about the result of his ocular inspection. Lee told her that the Lee was in a hurry to see the property, he asked the respondents the
mango trees "looked sick" so he was bringing an agriculturist to the exact address and the directions on how to reach Ibaan, Batangas.
property. Three weeks thereafter, Antonio called Lee again to make a The respondents thereupon instructed him to look for Teresa Ganzon,
follow-up of the latter’s visit to Ibaan. Lee informed her that he an officer of the Ibaan Rural Bank and the person to talk to regarding
already purchased the property and had made a down the property. While the letter-authority issued in favor of the
payment of ₱1,000,000.00. The remaining balance of respondents was non-exclusive, no evidence was adduced to show
₱1,200,000.00 was to be paid upon the approval of the incorporation that there were other persons, aside from the respondents, who
papers of the corporation he was organizing by the Securities and informed Lee about the property for sale. Ganzon testified that no
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
75
advertisement was made announcing the sale of the lot, nor did she Dunk Corporation (Slum Dunk). In the course of their business, the
give any authority to other brokers/agents to sell the subject petitioner pre-signed several checks to answer for the expenses of
property.31 The fact that it was Lee who personally called Borbon and Slam Dunk. Although signed, these checks had no payee’s name, date
asked for directions prove that it was only through the respondents or amount. The blank checks were entrusted to Gutierrez with the
that Lee learned about the property for sale.32 Significantly, too, Ms. specific instruction not to fill them out without previous notification to
Teresa Ganzon testified that there were no other persons other than and approval by the petitioner. According to petitioner, the
the respondents who inquired from her about the sale of the property arrangement was made so that he could verify the validity of the
to Lee.33 It can thus be readily inferred that the respondents were the payment and make the proper arrangements to fund the account.
only ones who knew about the property for sale and were responsible
in leading a buyer to its consummation. All these circumstances lead
In the middle of 1993, without the petitioner’s knowledge and
us to the inescapable conclusion that the respondents were the
consent, Gutierrez went to Marasigan (the petitioner’s former
procuring cause of the sale. When there is a close, proximate and
teammate), to secure a loan in the amount of ₱200,000.00 on the
causal connection between the broker’s efforts and the principal’s sale
excuse that the petitioner needed the money for the construction of
of his property, the broker is entitled to a commission.34
his house. After much contemplation and taking into account his
relationship with the petitioner and Gutierrez, Marasigan acceded to
The petitioners insist that the respondents are not entitled to any Gutierrez’ request and gave him ₱200,000.00 sometime in February
commission since they did not actually perform any acts of 1994. Gutierrez simultaneously delivered to Marasigan one of the
"negotiation" as required in the letter-authority. They refuse to pay blank checks the petitioner pre-signed with Pilipinas Bank. On May 24,
the commission since according to them, the respondents’ 1994, Marasigan deposited the check but it was dishonored for the
participation in the transaction was not apparent, if not nil. The reason "ACCOUNT CLOSED." It was later revealed that petitioner’s
respondents did not even look at the property themselves; did not account with the bank had been closed since May 28, 1993.
introduce the buyer to the seller; did not hold any conferences with
the buyer, nor take part in concluding the sale. For the non-
Marasigan sought recovery from Gutierrez, to no avail. He thereafter
compliance of this obligation "to negotiate," the petitioners argue, the
sent several demand letters to the petitioner asking for the payment
respondents are not entitled to any commission.
of ₱200,000.00, but his demands likewise went unheeded.
Consequently, he filed a criminal case for violation of B.P. 22 against
We find the argument specious. The letter of authority must be the petitioner, docketed as Criminal Case No. 42816.
read as a whole and not in its truncated parts. Certainly, it was
not the intention of Medrano to expect the respondents to do just that
On September 10, 1997, the petitioner filed before the Regional
(to negotiate) when he issued the letter of authority. The clear
Trial Court (RTC) a Complaint for Declaration of Nullity of
intention is to reward the respondents for procuring a buyer for the
Loan and Recovery of Damages.
property. Before negotiating a sale, a broker must first and foremost
bring in a prospective buyer. It has been held that a broker earns his
pay merely by bringing the buyer and the seller together, even if no The RTC dismissed the complaint which was affirmed by the Court of
sale is eventually made.35 The essential feature of a broker’s Appeals.
conventional employment is merely to procure a purchaser for a
property ready, able, and willing to buy at the price and on the terms ISSUE: Whether or not an SPA must be in writing.
mutually agreed upon by the owner and the purchaser. And it is not
a prerequisite to the right to compensation that the broker conduct HELD: No.
the negotiations between the parties after they have been brought
into contact with each other through his efforts.36 The case
of Macondray v. Sellner37 is quite instructive: Contracts of Agency May be Oral Unless The Law Requires a Specific
Form.
The business of a real estate broker or agent, generally, is only to find
a purchaser, and the settled rule as stated by the courts is that, in the Article 1868 of the Civil Code defines a contract of agency as a
absence of an express contract between the broker and his principal, contract whereby a person "binds himself to render some service or
the implication generally is that the broker becomes entitled to the to do something in representation or on behalf of another, with the
usual commissions whenever he brings to his principal a party who is consent or authority of the latter." Agency may be express, or implied
able and willing to take the property and enter into a valid contract from the acts of the principal, from his silence or lack of action, or his
upon the terms then named by the principal, although the particulars failure to repudiate the agency, knowing that another person is acting
may be arranged and the matter negotiated and completed between on his behalf without authority.
the principal and the purchaser directly.
As a general rule, a contract of agency may be oral.6 However, it must
Notably, there are cases where the right of the brokers to recover be written when the law requires a specific form, for example, in a
commissions were upheld where they actually took no part in the sale of a piece of land or any interest therein through an agent.
negotiations, never saw the customer, and even some in which they
did nothing except advertise the property, as long as it can be shown Article 1878 paragraph 7 of the Civil Code expressly requires a special
that they were the efficient cause of the sale.38 power of authority before an agent can loan or borrow money in
behalf of the principal, to wit:
In the case at bar, the role of the respondents in the transaction is
undisputed. Whether or not they participated in the negotiations of Art. 1878. Special powers of attorney are necessary in the following
the sale is of no moment. Armed with an authority to procure a cases:
purchaser and with a license to act as broker, we see no
reason why the respondents can not recover compensation
for their efforts when, in fact, they are the procuring cause of xxxx
the sale.
(7) To loan or borrow money, unless the latter act be urgent and
Article 1878 indispensable for the preservation of the things which are under
administration. (emphasis supplied)

Patrimonio vs. Gutierrez Article 1878 does not state that the authority be in writing. As long as
G.R. No. 187769, June 4, 2014 the mandate is express, such authority may be either oral or written.
We unequivocably declared in Lim Pin v. Liao Tian, et al.,7 that the
FACTS: The petitioner and the respondent Napoleon Gutierrez requirement under Article 1878 of the Civil Code refers to the nature
(Gutierrez) entered into a business venture under the name of Slam of the authorization and not to its form. Be that as it may, the
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
76
authority must be duly established by competent and convincing On June 17, 1992, the WHI filed a complaint against the RECCI
evidence other than the self serving assertion of the party claiming with the Regional Trial Court of Makati, for specific
that such authority was verbally given, thus: performance.

The requirements of a special power of attorney in Article 1878 of the The trial court rendered judgment in favor of the WHI. The CA
Civil Code and of a special authority in Rule 138 of the Rules of Court reversed the trial court. The CA ruled that, under the resolution of the
refer to the nature of the authorization and not its form. The Board of Directors of the RECCI, Roxas was merely authorized to sell
requirements are met if there is a clear mandate from the principal Lot No. 491-A-3-B-2 covered by TCT No. 78086, but not to grant right
specifically authorizing the performance of the act. As early as 1906, of way in favor of the WHI over a portion of Lot No. 491-A-3-B-1, or
this Court in Strong v. Gutierrez-Repide (6 Phil. 680) stated that such to grant an option to the petitioner to buy a portion thereof.
a mandate may be either oral or written, the one vital thing being that
it shall be express. And more recently, We stated that, if the special ISSUE: Whether the respondent is bound by the provisions in the
authority is not written, then it must be duly established by evidence: deed of absolute sale granting to the petitioner beneficial use and a
right of way over a portion of Lot No. 491-A-3-B-1.
x x x the Rules require, for attorneys to compromise the litigation of
HELD: No.
their clients, a special authority. And while the same does not state
that the special authority be in writing the Court has every reason to
In San Juan Structural and Steel Fabricators, Inc. v. Court of
expect that, if not in writing, the same be duly established by evidence
Appeals,21 we held that:
other than the self-serving assertion of counsel himself that such
authority was verbally given him.(Home Insurance Company vs.
United States lines Company, et al., 21 SCRA 863; 866: Vicente vs. A corporation is a juridical person separate and distinct from
Geraldez, 52 SCRA 210; 225). (emphasis supplied). its stockholders or members. Accordingly, the property of
the corporation is not the property of its stockholders or
members and may not be sold by the stockholders or
Woodchild Holdings vs. Roxas Electric members without express authorization from the
G.R. No. 140667, August 12, 2004 corporation's board of directors.

FACTS: At a special meeting on May 17, 1991, the respondent's Board

Indubitably, a corporation may act only through its board
of Directors approved a resolution authorizing the corporation,
through its president, Roberto B. Roxas, to sell Lot No. 491- of directors or, when authorized either by its by-laws or by
its board resolution, through its officers or agents in the
A-3-B-2 covered by TCT No. 78086, with an area of 7,213
square meters, at a price and under such terms and conditions normal course of business. The general principles of agency
which he deemed most reasonable and advantageous to the govern the relation between the corporation and its officers
corporation; and to execute, sign and deliver the pertinent sales or agents, subject to the articles of incorporation, by-laws,
documents and receive the proceeds of the sale for and on behalf of or relevant provisions of law. …22
the company.3
Generally, the acts of the corporate officers within the scope of their
Petitioner Woodchild Holdings, Inc. (WHI) wanted to buy Lot No. 491- authority are binding on the corporation. However, under Article 1910
A-3-B-2 covered by TCT No. 78086 on which it planned to construct of the New Civil Code, acts done by such officers beyond the scope of
its warehouse building, and a portion of the adjoining lot, Lot No. 491- their authority cannot bind the corporation unless it has ratified such
A-3-B-1. In a Letter to Roxas dated June 21, 1991, WHI President acts expressly or tacitly, or is estopped from denying them:
Jonathan Y. Dy offered to buy Lot No. 491-A-3-B-2 under stated terms
and conditions for P1,000 per square meter or at the price of Art. 1910. The principal must comply with all the obligations
P7,213,000.4 One of the terms incorporated in Dy's offer was the which the agent may have contracted within the scope of
following provision: his authority.

xxxx Furthermore, in the event that the right of way is As for any obligation wherein the agent has exceeded his
insufficient for the buyer's purposes (example: entry of a power, the principal is not bound except when he ratifies it
45-foot container), the seller agrees to sell additional expressly or tacitly.
square meter from his current adjacent property to
allow the buyer to full access and full use of the property.5
Thus, contracts entered into by corporate officers beyond
the scope of authority are unenforceable against the
Roxas indicated his acceptance of the offer on page 2 of the deed. corporation unless ratified by the corporation.23
Less than a month later or on July 1, 1991, Roxas, as President of
RECCI, as vendor, and Dy, as President of WHI, as vendee,
In BA Finance Corporation v. Court of Appeals,24 we also ruled that
executed a contract to sell in which RECCI bound and obliged itself
persons dealing with an assumed agency, whether the assumed
to sell to Dy Lot No. 491-A-3-B-2., under the following terms and
agency be a general or special one, are bound at their peril, if they
conditions:
would hold the principal liable, to ascertain not only the fact of agency
but also the nature and extent of authority, and in case either is
The Vendor agree (sic), as it hereby agrees and binds itself controverted, the burden of proof is upon them to establish it.
to give Vendee the beneficial use of and a right of way from
Sumulong Highway to the property herein conveyed
In this case, the respondent denied authorizing its then president
consists of 25 square meters wide to be used as the latter's
Roberto B. Roxas to sell a portion of Lot No. 491-A-3-B-1 covered by
egress from and ingress to and an additional 25 square
TCT No. 78085, and to create a lien or burden thereon. The petitioner
meters in the corner of Lot No. 491-A-3-B-1, as
was thus burdened to prove that the respondent so authorized Roxas
turning and/or maneuvering area for Vendee's vehicles.
to sell the same and to create a lien thereon.

The WHI demanded that the RECCI sell a portion of Lot No. 491-A-3-
Evidently, Roxas was not specifically authorized under the said
B-1 covered by TCT No. 78085 for its beneficial use within 72 hours
resolution to grant a right of way in favor of the petitioner on a portion
from notice thereof, otherwise the appropriate action would be filed
of Lot No. 491-A-3-B-1 or to agree to sell to the petitioner a portion
against it. RECCI rejected the demand of WHI. WHI reiterated its
thereof. The authority of Roxas, under the resolution, to sell Lot No.
demand in a Letter dated May 29, 1992. There was no response from
491-A-3-B-2 covered by TCT No. 78086 did not include the authority
RECCI.
to sell a portion of the adjacent lot, Lot No. 491-A-3-B-1, or to create
or convey real rights thereon. The rule is that if the act of the agent
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
77
is one which requires authority in writing, those dealing with him are entered into the two agreements with Dr. Roque. During their
charged with notice of that fact.28 negotiation, petitioner, through its representatives, was apprised of
the fact that the subject property actually belonged to respondent.
Powers of attorney are generally construed strictly and courts will not
infer or presume broad powers from deeds which do not sufficiently It was not shown that Dr. Felipe C. Roque had been an authorized
include property or subject under which the agent is to deal.29 The agent of respondent.
general rule is that the power of attorney must be pursued within legal
strictures, and the agent can neither go beyond it; nor beside it. The
In a contract of agency, the agent acts in representation or in behalf
act done must be legally identical with that authorized to be done.30 In
of another with the consent of the latter.9 Article 1878 of the Civil
sum, then, the consent of the respondent to the assailed provisions
Code expresses that a special power of attorney is necessary to lease
in the deed of absolute sale was not obtained; hence, the assailed
any real property to another person for more than one year. The lease
provisions are not binding on it.
of real property for more than one year is considered not merely an
act of administration but an act of strict dominion or of ownership. A
Shopper’s Paradise vs. Roque special power of attorney is thus necessary for its execution through
G.R. No. 148775, January 13, 2004 an agent.

FACTS: On 23 December 1993, petitioner Shopper’s Paradise The Court cannot accept petitioner’s argument that respondent is
Realty & Development Corporation, represented by its president, guilty of laches. Laches, in its real sense, is the failure or neglect, for
Veredigno Atienza, entered into a twenty-five year lease with Dr. an unreasonable and unexplained length of time, to do that which, by
Felipe C. Roque, now deceased, over a parcel of land, with an area of exercising due diligence, could or should have been done earlier; it is
two thousand and thirty six (2,036) square meters, situated at Plaza negligence or omission to assert a right within a reasonable time,
Novaliches, Quezon City, covered by Transfer of Certificate of Title warranting a presumption that the party entitled to assert it either has
(TCT) No. 30591 of the Register of Deeds of Quezon City in the name abandoned or declined to assert it.10
of Dr. Roque. Simultaneously, petitioner and Dr. Roque likewise
entered into a memorandum of agreement for the construction,
development and operation of a commercial building complex on the Respondent learned of the contracts only in February 1994 after the
property. death of his father, and in the same year, during November, he
assailed the validity of the agreements. Hardly, could respondent then
be said to have neglected to assert his case for unreasonable length
The contract of lease and the memorandum of agreement, both of time.
notarized, were to be annotated on TCT No. 30591 within sixty (60)
days from 23 December 1993 or until 23 February 1994. The
annotations, however, were never made because of the untimely Dominion vs. Court of Appeals
demise of Dr. Felipe C. Roque. The death of Dr. Roque on 10 February G.R. No. 129919, February 6, 2002
1994 constrained petitioner to deal with respondent Efren P. Roque,
one of the surviving children of the late Dr. Roque, but the FACTS: On January 25, 1991, plaintiff Rodolfo S. Guevarra instituted
negotiations broke down due to some disagreements. In a letter, Civil Case No. 8855 for sum of money against defendant Dominion
dated 3 November 1994, respondent advised petitioner "to desist Insurance Corporation. Plaintiff sought to recover thereunder the sum
from any attempt to enforce the aforementioned contract of lease and of P156,473.90 which he claimed to have advanced in his capacity as
memorandum of agreement". manager of defendant to satisfy certain claims filed by defendant’s
clients.

On 15 February 1995, respondent filed a case for annulment of The trial court ruled in favor of the private respondent which was
the contract of lease and the memorandum of agreement, favored by the CA, on appeal.
with a prayer for the issuance of a preliminary injunction, before
Branch 222 of the Regional Trial Court of Quezon City. Efren P. Roque ISSUE: May private respondent claim based on Law on Agency.
alleged that he had long been the absolute owner of the subject
property by virtue of a deed of donation inter vivos executed in
his favor by his parents, Dr. Felipe Roque and Elisa Roque, on 26 HELD: No.
December 1978, and that the late Dr. Felipe Roque had no
authority to enter into the assailed agreements with
petitioner. The donation was made in a public instrument duly By the contract of agency, a person binds himself to render some
acknowledged by the donor-spouses before a notary public and duly service or to do something in representation or on behalf of another,
accepted on the same day by respondent before the notary public in with the consent or authority of the latter.10 The basis for agency is
the same instrument of donation. The title to the property, however, representation.11 On the part of the principal, there must be an actual
remained in the name of Dr. Felipe C. Roque. intention to appoint12 or an intention naturally inferrable from his
words or actions;13 and on the part of the agent, there must be an
intention to accept the appointment and act on it,14 and in the absence
The trial court dismissed the complaint of respondent. On appeal, the of such intent, there is generally no agency.15
Court of Appeals reversed the decision of the trial court and held to
be invalid the Contract of Lease and Memorandum of Agreement.
A perusal of the Special Power of Attorney16 would show that
petitioner (represented by third-party defendant Austria) and
ISSUE: Whether or not the lease agreement and the MOA were valid. respondent Guevarra intended to enter into a principal-agent
relationship. Despite the word "special" in the title of the document,
HELD: No. the contents reveal that what was constituted was actually a general
agency. The terms of the agreement read:
A person dealing with registered land may thus safely rely on the
correctness of the certificate of title issued therefore, and he is not
required to go beyond the certificate to determine the condition of the "That we, FIRST CONTINENTAL ASSURANCE COMPANY, INC.,17 a
property7 but, where such party has knowledge of a prior existing corporation duly organized and existing under and by virtue of the
interest which is unregistered at the time he acquired a right thereto, laws of the Republic of the Philippines, xxx represented by the
his knowledge of that prior unregistered interest would have the effect undersigned as Regional Manager, xxx do hereby appoint RSG
of registration as regards to him.8 Guevarra Insurance Services represented by Mr. Rodolfo
Guevarra xxx to be our Agency Manager in San Fdo., for our place
and stead, to do and perform the following acts and things:
The appellate court was not without substantial basis when it found
petitioner to have had knowledge of the donation at the time it
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
78
"1. To conduct, sign, manager (sic), carry on and transact pay,25 which states that the payment shall come from respondent
Bonding and Insurance business as usually pertain to a Guevarra’s revolving fund or collection. The authority to pay is worded
Agency Office, or FIRE, MARINE, MOTOR CAR, PERSONAL as follows:
ACCIDENT, and BONDING with the right, upon our prior
written consent, to appoint agents and sub-agents.
"This is to authorize you to withdraw from your revolving
fund/collection the amount of PESOS __________________ (P )
"2. To accept, underwrite and subscribed (sic) cover notes representing the payment on the _________________ claim of
or Policies of Insurance and Bonds for and on our behalf. assured _______________ under Policy No. ______ in that accident
of ___________ at ____________.
"3. To demand, sue, for (sic) collect, deposit, enforce
payment, deliver and transfer for and receive and give "It is further expected, release papers will be signed and authorized
effectual receipts and discharge for all money to which the by the concerned and attached to the corresponding claim folder after
FIRST CONTINENTAL ASSURANCE COMPANY, INC.,18 may effecting payment of the claim.
hereafter become due, owing payable or transferable to
said Corporation by reason of or in connection with the
"(sgd.) FERNANDO C. AUSTRIA
above-mentioned appointment.
Regional Manager"26

"4. To receive notices, summons, and legal processes for

[Emphasis supplied]
and in behalf of the FIRST CONTINENTAL ASSURANCE
COMPANY, INC., in connection with actions and all legal
proceedings against the said Corporation."19 [Emphasis The instruction of petitioner as the principal could not be any
supplied] clearer Respondent Guevarra was authorized to pay the claim of the
insured, but the payment shall come from the revolving fund or
collection in his possession.
The agency comprises all the business of the principal,20 but,
couched in general terms, it is limited only to acts of
administration.21 Having deviated from the instructions of the principal, the expenses
that respondent Guevarra incurred in the settlement of the
claims of the insured may not be reimbursed from petitioner
A general power permits the agent to do all acts for which the law
Dominion. This conclusion is in accord with Article 1918, Civil Code,
does not require a special power.22 Thus, the acts enumerated in or
which states that:
similar to those enumerated in the Special Power of Attorney do not
require a special power of attorney.
"The principal is not liable for the expenses incurred by the agent in
the following cases:
Article 1878, Civil Code, enumerates the instances when a special
power of attorney is required. The pertinent portion that applies to
this case provides that: "(1) If the agent acted in contravention of the principal’s
instructions, unless the latter should wish to avail himself of
the benefits derived from the contract;
"Article 1878. Special powers of attorney are necessary in the
following cases:
"xxx xxx xxx"
"(1) To make such payments as are not usually considered as acts of
administration; However, while the law on agency prohibits respondent Guevarra
from obtaining reimbursement, his right to recover may still be
justified under the general law on obligations and contracts.
"x x x xxx xxx

Article 1236, second paragraph, Civil Code, provides:

"(15) Any other act of strict dominion."

"Whoever pays for another may demand from the debtor what he has
The payment of claims is not an act of administration. The settlement
paid, except that if he paid without the knowledge or against the will
of claims is not included among the acts enumerated in the Special
of the debtor, he can recover only insofar as the payment has been
Power of Attorney, neither is it of a character similar to the acts
beneficial to the debtor."
enumerated therein. A special power of attorney is required before
respondent Guevarra could settle the insurance claims of the insured.
In this case, when the risk insured against occurred, petitioner’s
liability as insurer arose.1âwphi1 This obligation was extinguished
Respondent Guevarra’s authority to settle claims is embodied in the
when respondent Guevarra paid the claims and obtained Release of
Memorandum of Management Agreement23 dated February 18, 1987
Claim Loss and Subrogation Receipts from the insured who were paid.
which enumerates the scope of respondent Guevarra’s duties and
responsibilities as agency manager for San Fernando, Pampanga, as
follows: Thus, to the extent that the obligation of the petitioner has been
extinguished, respondent Guevarra may demand for reimbursement
from his principal. To rule otherwise would result in unjust enrichment
"x x x xxx xxx
of petitioner.

"1. You are hereby given authority to settle and dispose

Adriano vs. Pangillinan
of all motor car claims in the amount of P5,000.00 with prior
G.R. No. 137471, January 16, 2002
approval of the Regional Office.
FACTS:"[Petitioner] Guillermo Adriano is the registered owner of a
"2. Full authority is given you on TPPI claims settlement. parcel of land with an area of three hundred four (304) square meters,
more or less, situated at Col. S. Cruz, Geronimo, Montalban, Rizal and
"xxx xxx x x x "24 covered by Transfer Certificate of Title No. 337942.

In settling the claims mentioned above, respondent Guevarra’s "Sometime on November 23, 1990[, petitioner] entrusted the
authority is further limited by the written standard authority to original owner's copy of the aforesaid Transfer Certificate of Title
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
79
to Angelina Salvador, a distant relative, for the purpose of securing a assuming that both parties were negligent, the Court opines
mortgage loan. that respondent should bear the loss. His superior knowledge of
the matter should have made him more cautious before releasing the
loan and accepting the identity of the mortgagor.
"Without the knowledge and consent of [petitioner], Angelina
Salvador mortgaged the subject property to the [Respondent]
Romulo Pangilinan. After a time, [petitioner] verified the status of People vs. Carpo
his title with the Registry of Deeds of Marikina, Metro Manila, and was G.R. No. 132676, April 4, 2001
surprised to discover that upon the said TCT No. 337942 was already
annotated or inscribed a first Real Estate Mortgage purportedly FACTS: In convicting Jaime Carpo, Warlito Ibao, Oscar Ibao
executed by one Guillermo Adriano over the aforesaid parcel of land, and Roche Ibao of the multiple murder of Florentino, Norwela
together with the improvements thereon, in favor of the [Respondent] and Nissan Dulay and the attempted murder of Noemi Dulay
Romulo Pangilinan. [Petitioner] denied that he ever executed the deed the trial court gave full credit to the testimony of Ruben.10 It
of mortgage, and denounced his signature thereon as a forgery. accepted his straightforward testimony and ruled that "at no instance
throughout the twin testimonies of Meriales did the Court notice a
twitch of falsehood on his lips."11 Accordingly, in accordance with Sec.
"[Petitioner] thereafter repeatedly demanded that [respondent] 6, RA 7659, and Art. 48 of The Revised Penal Code the trial court
return or reconvey to him his title to the said property and when these imposed upon all of the accused the supreme penalty of death and
demands were ignored or disregarded, he instituted the present suit. ordered them to solidarily indemnify the heirs of the deceased as well
as Noemi Dulay in the amount of P600,000.00.12
"[Petitioner] likewise filed a criminal case for estafa thru falsification
of public document against [Respondent] Romulo Pangilinan, as well It appears that under the auspices of the trial court counsel for the
as against Angelina Salvador. "[Respondent] in his defense testified defense entered into an oral compromise with the public prosecutor,
that he [was] a businessman engaged in the buying and selling as which was subsequently ratified by the private complainant, limiting
well as in the mortgage of real estate properties; that sometime in the amount of civil liability to P600,000.00.
the first week of December, 1990 Angelina Salvador, together with
Marilou Macanaya and a person who introduced himself as Guillermo
Adriano, came to his house inquiring on how they could secure a loan
over a parcel of land; ISSUE: Whether or not the compromise was valid.

HELD: No.
"[Respondent] claimed that [petitioner] voluntarily entrusted his title
to the subject property to Angelina Salvador for the purpose of
securing a loan, thereby creating a principal-agent relationship Article 1878 of the Civil Code and Sec. 23 of Rule 138 of the Rules of
between the plaintiff and Angelina Salvador for the aforesaid purpose. Court set forth the attorney's power to compromise. Under Art. 1878
Thus, according to [respondent], the execution of the real estate of the Civil Code, a special power of attorney is necessary "to
mortgage was within the scope of the authority granted to Angelina compromise, to submit questions to arbitration, to renounce
Salvador; the right to appeal from a judgment, to waive objections to
the venue of an action or to abandon a prescription already
acquired." On the other hand, Sec. 23, Rule 138 of the Rules of Court
The trial court declared the Real Estate Mortgage as null and void. provides, "(a)ttorneys have authority to bind their clients in any case
This decision was reversed by the CA, on appeal. by any agreement in relation thereto made in writing, and in taking
appeal, and in all matters of ordinary judicial procedure, but they
ISSUE: Whether the REM was valid. cannot, without special authority, compromise their clients' litigation
or receive anything in discharge of their clients' claims but the full
HELD: No. amount in cash."

Petitioner's act of entrusting and delivering his TCT and Residence The requirements under both provisions are met when there is a clear
Certificate to Salvador was only for the purpose of helping him find a mandate expressly given by the principal to his lawyer specifically
money lender. Not having executed a power of attorney in her favor, authorizing the performance of an act.27 It has not escaped our
he clearly did not authorize her to be his agent in procuring the attention that in the present case counsel for both parties had no
mortgage. He only asked her to look for possible money lenders. special power of attorney from their clients to enter into a
Article 1878 of the Civil Code provides: compromise. However, insofar as Teresita was concerned, she was
apprised of the agreement and in fact had signed her name as
"Art. 1878. Special powers of attorney are necessary in the instructed by the court, thereby tacitly ratifying the same. As for
following cases: accused-appellants, the aforecited dialogue between the court and
counsel does not show that they were ever consulted regarding the
proposed settlement. In the absence of a special power of attorney
xxx xxx xxx given by accused-appellants to their counsel, the latter can neither
bind nor compromise his clients' civil liability. Consequently, since
(7) To loan or borrow money, unless the latter act be urgent Atty. Sanglay and Atty. Rafael had no specific power to compromise
and indispensable for the preservation of the things which the civil liability of all accused-appellants, its approval by the trial court
are under administration; which did not take the precautionary measures to ensure the
protection of the right of accused-appellants not to be deprived of
their property without due process of law, could not legalize it. For
xxx xxx xxx
being violative of existing law and jurisprudence, the settlement
should not be given force and effect.
(12) To create or convey real rights over immovable
property;
In light of the foregoing, the award of damages must be set aside and
a new one entered with all the circumstances of the case in mind. For
xxx xxx x x x." the death of Florentino, Norwela and Nissan Dulay, civil indemnity at
P50,000.00 each or a total amount of P150,000.00 is awarded to their
As between petitioner and respondent, we hold that the failure of the heirs. This is in addition to the award of moral damages at an
latter to verify essential facts was the immediate cause of his aggregate amount of P150,000.00 for their emotional and mental
predicament. If he were an ordinary individual without any expertise anguish. With respect to Noemi, an indemnity of P30,000.00 would
or experience in mortgages and real estate dealings, we would be just and proper. All taken, an award of P330,000.00 is granted.
probably understand his failure to verify essential facts. However,
he has been in the mortgage business for seven years. Thus,
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
80

Anacleto vs. Twest The retainer will amount to P7,500.00 per month. In order to facilitate
G.R. No. 131411, August 29, 2000 your account, we shall bill this retainer monthly, starting July, 1990,
if agreeable to you.
FACTS: On February 6, 1995, a complaint for reconveyance of title
was filed in the name of Alexander Van Twest and Euroceanic The retainer will cover office conferences, drawing of ordinary
Rainbow Enterprises Philippines, Inc. (Euroceanic) against petitioner business documents, contracts, deeds, and the like as well as legal
Gloria A. Anacleto and Isaias M. Bongar. The complaint filed by Atty. advise not requiring substantial time expense on our part. The
Ernesto V. Perez stated that Alexander Van Twest "has been reported retainer will not cover the trial of any litigated matters in court or
missing since June 16, 1992 but is duly represented herein by before any administrative body. The cases that we will handle for you
undersigned counsel as his agent and/or general counsel." shall be subject of a separate progressive billings. In such cases we
cannot usually determine in advance the amount of work that will be
On March 31, 1995, Atty. Perez, in representation of Van Twest, required. However, any extraordinary matters will be discussed with
entered into a compromise agreement with Anacleto and Bongar, then you in advance so that you may have an estimate of the amount that
represented by Atty. Diosdado M. Allado. might be involved before making any commitments.

On April 6, 1995, the trial court rendered judgment based on the If the above arrangement is acceptable to you, please sign, date and
compromise agreement. Petitioner later filed a manifestation, return the enclosed duplicate copy of this letter for our file.
submitting a copy of a special power of attorney (SPA).
Very truly yours,
On June 2, 1995, petitioner, represented by new counsel, Atty. Marvin
L. Herrera, filed an urgent omnibus motion asking the court to order MARTINEZ & PEREZ
Atty. Perez to submit an SPA and, in the meantime, to defer LAW OFFICES
petitioner’s compliance with her obligation under the compromise
agreement.
by:

In his comment dated June 23, 1995, Atty. Perez admitted he had no
SPA from Van Twest to enter into a compromise agreement. However, (Signed)
he claimed that petitioner’s former counsel, the law firm of Salonga, ERNESTO V. PEREZ
Hernandez and Allado, had been informed of this fact.
The above arrangement is acceptable:
In an order dated March 17, 1996, the trial court denied petitioner’s
motion on the ground that she was estopped to question the validity (Signed)
of the compromise agreement considering that, during the
negotiations which led to the signing of the compromise agreement,
Atty. Perez had disclosed the fact that he had no SPA. The CA affirmed 10 July 1990
the trial court.
It is clear from this agreement that Atty. Perez’s authority to represent
ISSUE: Whether or not the compromise agreement was valid. Van Twest does not include a special authority to enter into the
questioned compromise agreement as required by Rule 138, §23
which provides:
HELD: No.
Authority of attorneys to bind clients. -Attorneys have authority to
The basic issue to be resolved here is whether a party who enters into bind their clients in any case by any agreement in relation thereto
a compromise agreement with another allegedly represented by a made in writing, and in taking appeals, and in all matters of ordinary
lawyer who has no authority to institute a litigation, much less enter judicial procedure. But they cannot, without special authority,
into a compromise agreement, is estopped from questioning the compromise their client’s litigation, or receive anything in discharge
validity of such agreement. of a client’s claim but the full amount in cash.

Under the facts of this case, and for reasons to be hereafter discussed, Indeed, a special power of attorney constituting Atty. Perez as
we hold that she is not. attorney-in-fact is necessary. Art. 1878 of the Civil Code provides:

First. A compromise is a contract whereby parties, by making ART. 1878. Special powers of attorney are necessary in the following
reciprocal concessions, avoid a litigation or put an end to one already cases:
commenced.2 Like any other contract, therefore, it must comply with
the requisites provided in Art. 1318 of the Civil Code, to wit: (1)
consent of the contracting parties; (2) object certain which is the (1) To make such payments as are not usually considered
subject matter of the contract; and (3) cause of the obligation which as acts of administration;
is established.3
(2) To effect novations which put an end to obligations
Now, it is admitted by Atty. Perez that his only authority to represent already in existence at the time the agency was constituted;
Van Twest and Euroceanic is the retainer agreement he had with Van
Twest. This agreement reads:4 (3) To compromise, to submit questions to arbitration, to
renounce the right to appeal from a judgment, to waive
11 July 1990 objections to the venue of an action or to abandon a
prescription already acquired;

MR. ALEXANDER VAN TWEST

Manila ....

Dear. Mr. Van Twest: It is noteworthy that the action for reconveyance filed by Atty. Perez
was brought not only in behalf of Van Twest but also of Euroceanic,
a juridical person from which he should have secured the necessary
Thank you for deciding to retain our law firm as general counsel to authority to institute this case and enter into a compromise
handle your civil and criminal cases. agreement. The law specifically requires that juridical persons may
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
81
enter into a compromise only in the form and with the requisites which parties, particularly the complainants, he is satisfied that
may be necessary to alienate their property.5 The power to they understand the terms and conditions of the settlement
compromise or settle claims in favor of or against the corporation is and that it was entered into freely, and voluntarily by them
vested in the board of directors.6 Hence, in the absence of any and the agreement is not contrary to law, morals and public
authorization from the board of directors of Euroceanic, Atty. Perez policies.
could not file any suit in its behalf, regardless of the fact that Van
Twest was the former chairman of its board.
In the case at bench, the NLRC found that:

As Atty. Perez had no authority to litigate or enter into a compromise

. . . In the case at bar, the satisfaction of judgment dated
agreement in behalf of Van Twest or Euroceanic, the compromise
October 19, 1990 was executed by the complainants
agreement is void. In Quiban v. Butalid,7 it was held that a
without the assistance of their counsel and without the
compromise agreement entered into by a person not duly authorized
approval of the Labor Arbiter (Sec. 2, Rule V The New Rules
to do so by the principal is void and has no legal effect.
of NLRC). There is also a great disparity with
regards (sic) to the monetary award . . . (Rollo, pp. 36-37;
Loyola Security vs. NLRC Emphasis supplied).
G.R. No. 113287, May 9, 1995
We find no grave abuse of discretion committed by NLRC inasmuch
FACTS: Private respondents Victor Prado, Sr. and Matilde Tuscano as its decision is supported by the records of the case. Thus, we adopt
filed a complaint against petitioners, the Loyola Security and Detective the findings of NLRC to the effect that the settlement entered into by
Agency and the latter's general manager, Ruperto Acle, Jr., for illegal the parties was without the assistance of counsel or approval of the
dismissal, illegal deduction underpayment of wages, non-payment of Labor Arbiter. Furthermore, the amount agreed upon as settlement is
overtime pay, legal holiday pay, premium pay for holiday and rest day, a far cry from that awarded by the Labor Arbiter.
and violation of P.D. No. 851.

We also note that respondent Prado executed the compromise

In his Decision dated March 30, 1989, the Labor Arbiter ruled in favor agreement not only on his own behalf but on behalf of respondent
of private respondents (Rollo, p. 33). The award as computed by the Tuscano. There is, however, no showing that respondent Prado was
Research and Information Unit of the Commission for both private duly authorized by respondent Tuscano to waive a part of the award
respondents totalled P91,317.93, exclusive of attorney's fees ( Rollo, given her.
p. 33).

Under Article 1878 of the Civil Code of the Philippines, a special power
On appeal, the NLRC affirmed the decision of the Labor Arbiter. of attorney is necessary:

Private respondents then filed a Motion for Issuance of a Writ of xxx xxx xxx
Execution. However, on October 19, 1990, they filed a Joint
Manifestation acknowledging complete satisfaction of the
award. (2) To effect novations which put an end to obligations
already in existence at the time the agency was constituted;

On November 17, 1992, private respondents again filed a Motion for

the Issuance of an Alias Writ of Execution for the recovery of the (3) To compromise, . . .
balance of the award, claiming that they received less than the award
of the Labor Arbiter. The motion was granted. (4) To waive any obligation gratuitously;

ISSUE: Whether or not claims based on judgement if vacated by the xxx xxx xxx
compromise agreement entered by the litigants in the labor case.
(15) Any other act of strict dominion.
HELD: No.

It is petitioners' belief that the acts of Prado in entering into a Hence, being violative of existing law and jurisprudence, such
compromise agreement and in accepting an advance of P5,000.00 settlement cannot be given force and effect.
from petitioner Acle constituted a novation of the award adjudged by
the Labor Arbiter (Rollo, pp. 10-11). Mercado vs. Allied Banking
G.R. No. 171460, July 27, 2007
The Labor Code of the Philippines does not contain any provision on
compromise agreements or quitclaims in cases pending before the FACTS: On 28 May 1992, Perla executed a Special Power of Attorney
Labor Arbiter and the NLRC. However, the New Rules of Procedure of (SPA) in favor of her husband, Julian D. Mercado (Julian) over several
NLRC in Section 2, Rule V (Proceedings Before Labor Arbiter) provides pieces of real property registered under her name, authorizing the
that: latter to perform the following acts:

xxx xxx xxx 1. To act in my behalf, to sell, alienate, mortgage, lease

and deal otherwise over the different parcels of land
described hereinafter, to wit:
Should the parties arrive at any agreement as to the whole
or any part of the dispute, the same shall be reduced to
writing and signed by the parties and their respective xxxxx
counsels, if any, before the Labor Arbiter. The settlement
shall be approved by the Labor Arbiter after being satisfied On the strength of the aforesaid SPA, Julian, obtained a loan from the
that it was voluntarily entered into by the parties and after respondent in the amount of ₱3,000,000.00, secured by real estate
having explained to them the terms and consequences mortgage constituted on TCT No. RT-18206 (106338) which
thereof. covers a parcel of land with an area of 805 square meters, registered
with the Registry of Deeds of Quezon City (subject property).5
A compromise agreement entered into by the parties not in
the presence of the Labor Arbiter before whom the case is Still using the subject property as security, Julian obtained an
pending shall be approved by him if, after confronting the additional loan from the respondent in the sum of ₱5,000,000.00,
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
82
evidenced by a Promissory Note6 he executed on 5 February 1997 as to be presumed that the contracting parties know their scope and
another real estate mortgage (REM). effects.14

It appears, however, that there was no property identified in the Equally relevant is the rule that a power of attorney must be strictly
SPA as TCT No. RT – 18206 (106338) and registered with the construed and pursued. The instrument will be held to grant only
Registry of Deeds of Quezon City. What was identified in the SPA those powers which are specified therein, and the agent may neither
instead was the property covered by TCT No. RT-106338 registered go beyond nor deviate from the power of attorney.15 Where powers
with the Registry of Deeds of Pasig. and duties are specified and defined in an instrument, all such powers
and duties are limited and are confined to those which are specified
and defined, and all other powers and duties are excluded.16 This is
Subsequently, Julian defaulted on the payment of his loan obligations.
but in accord with the disinclination of courts to enlarge the authority
Thus, respondent initiated extra-judicial foreclosure proceedings over
granted beyond the powers expressly given and those which
the subject property which was subsequently sold at public auction
incidentally flow or derive therefrom as being usual and reasonably
wherein the respondent was declared as the highest bidder as shown
necessary and proper for the performance of such express powers.17
in the Sheriff’s Certificate of Sale dated 15 January 1998.7

Even the commentaries of renowned Civilist Manresa18 supports a

The RTC rendered a Decision declaring the REM constituted over the
strict and limited construction of the terms of a power of attorney:
subject property null and void, for Julian was not authorized by the
terms of the SPA to mortgage the same. The Court of Appeals
reversed the RTC Decision and upheld the validity of the REM The law, which must look after the interests of all, cannot permit a
constituted over the subject property on the strength of the SPA. man to express himself in a vague and general way with reference to
the right he confers upon another for the purpose of alienation or
hypothecation, whereby he might be despoiled of all he possessed
ISSUE: Whether or not the mortgage was valid,
and be brought to ruin, such excessive authority must be set down in
the most formal and explicit terms, and when this is not done, the law
HELD: No.
reasonably presumes that the principal did not mean to confer it.

Under Article 1878 of the Civil Code, a special power of attorney is

In this case, we are not convinced that the property covered by TCT
necessary in cases where real rights over immovable property are
No. 106338 registered with the Registry of Deeds of Pasig (now
created or conveyed.12 In the SPA executed by Perla in favor of Julian
Makati) is the same as the subject property covered by TCT No. RT-
on 28 May 1992, the latter was conferred with the authority to "sell,
18206 (106338) registered with the Registry of Deeds of Quezon City.
alienate, mortgage, lease and deal otherwise" the different pieces of
The records of the case are stripped of supporting proofs to verify the
real and personal property registered in Perla’s name. The SPA
respondent’s claim that the two titles cover the same property. It
likewise authorized Julian "[t]o exercise any or all acts of strict
failed to present any certification from the Registries of Deeds
dominion or ownership" over the identified properties, and rights
concerned to support its assertion. Neither did respondent take the
and interest therein. The existence and due execution of this SPA by
effort of submitting and making part of the records of this case copies
Perla was not denied or challenged by petitioners.
of TCTs No. RT-106338 of the Registry of Deeds of Pasig (now Makati)
and RT-18206 (106338) of the Registry of Deeds of Quezon City, and
There is no question therefore that Julian was vested with the power closely comparing the technical descriptions of the properties covered
to mortgage the pieces of property identified in the SPA. However, as by the said TCTs. The bare and sweeping statement of respondent
to whether the subject property was among those identified in the that the properties covered by the two certificates of title are one and
SPA, so as to render Julian’s mortgage of the same valid, is a question the same contains nothing but empty imputation of a fact that could
we still must resolve. hardly be given any evidentiary weight by this Court.

After an examination of the literal terms of the SPA, we find that the Having arrived at the conclusion that Julian was not conferred by Perla
subject property was not among those enumerated therein. There is with the authority to mortgage the subject property under the terms
no obvious reference to the subject property covered by TCT No. RT- of the SPA, the real estate mortgages Julian executed over the said
18206 (106338) registered with the Registry of Deeds of Quezon City. property are therefore unenforceable.

There was also nothing in the language of the SPA from which we MIAA vs. Unchuan
could deduce the intention of Perla to include the subject property G.R. No. 182537, June 1, 2016
therein. We cannot attribute such alleged intention to Perla who
executed the SPA when the language of the instrument is bare of any FACTS: On March 5, 2004, respondent Richard Unchuan (Unchuan)
indication suggestive of such intention. Contrariwise, to adopt the filed a complaint for Partial Declaration of Nullity of the Deed of
intent theory advanced by the respondent, in the absence of clear and Absolute Sale with Plea for Partition, Damages and Attorney's Fees
convincing evidence to that effect, would run afoul of the express before the RTC against MCIAA.5 Unchuan later filed an Amended
tenor of the SPA and thus defeat Perla’s true intention. Complaint for Declaration of Nullity of Deed of Absolute Sale,
Quieting of Title and/or Payment of Just Compensation,
In cases where the terms of the contract are clear as to leave no room Rental and Damages and Attorney's Fees by respondent
for interpretation, resort to circumstantial evidence to ascertain the against petitioner.
true intent of the parties, is not countenanced. As aptly stated in the
case of JMA House, Incorporated v. Sta. Monica Industrial and In his complaint, Unchuan alleged, among others, that he was the
Development Corporation,13 thus: legal and rightful owner of Lot No. 4810-A, with an area of 177,176
square meters, and Lot No. 4810-B, with an area of 2,740 square
meters, both located in Barrio Buaya, Lapu-Lapu City, and covered by
[T]he law is that if the terms of a contract are clear and leave no Original Certificate of Title (OCT) No. R0-1173;7 that the title was
doubt upon the intention of the contracting parties, the literal meaning registered under the names of the heirs of Eugenio Godinez; and that
of its stipulation shall control. When the language of the contract is he bought the two lots from the surviving heirs of the
explicit, leaving no doubt as to the intention of the drafters, the courts registered owners through several deeds of absolute sale, all
may not read into it [in] any other intention that would contradict its dated December 7, 1998.9
main import. The clear terms of the contract should never be the
subject matter of interpretation. Neither abstract justice nor the rule Unchuan further alleged that he came to know that Atanacio Godinez
on liberal interpretation justifies the creation of a contract for the (Atanacio), the supposed attorney-in-fact of all the registered owners
parties which they did not make themselves or the imposition upon and their heirs, already sold both lots to Civil Aeronautics
one party to a contract or obligation not assumed simply or merely to Administration (CAA),19 the predecessor of MCIAA; that the sale
avoid seeming hardships. The true meaning must be enforced, as it is covered by the Deed of Absolute Sale,20 dated April 3, 1958, was null
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
83
and void because the registered owners and their heirs did not required by law to enable an appointee of an agency (couched) in
authorize Atanacio to sell their undivided shares in the general terms to sell must be one that expressly mentions a sale or
subject lots in favor of CAA; that no actual consideration was paid that includes a sale as a necessary ingredient of the act mentioned.
to the said registered owners or their heirs, despite promises that they For the principal to confer the right upon an agent to sell real estate,
would be paid; that the deed of absolute sale did not bear the a power of attorney must so express the powers of the agent in clear
signature of the CAA representative. and unmistakable language. When there is any reasonable doubt that
the language so used conveys such power, no such construction shall
In its Answer,28 MCIAA averred that on April 3, 1958, Atanacio, acting be given the document.
as the representative of the heirs of Eugenio Godinez, who were the
Without a special power of attorney specifying his authority to dispose
registered owners, sold Lot No. 4810-A and Lot No. 4810-B to the
of an immovable, Atanacio could not be legally considered as the
Republic of the Philippines, represented by CAA. Thereafter, CAA took
representative of the other registered co-owners of the properties in
possession of the said property upon payment of the purchase price.
question. Atanacio's act of conveying Lot No. 4810-A and Lot No.
To corroborate the said transaction, on September 17, 1969,
4810-B cannot be a valid source of obligation to bind all the other
Atanacio, along with other former registered co-owners, signed a
registered co-owners and their heirs because he was not clothed with
deed of partition attesting to the fact of sale of the two lots in favor
any authority to enter into a contract with CAA. The other heirs could
of the government and admitted its absolute right over the same.
not have given their consent as required under Article 1475 50 of the
Since then, the said lots had been in the possession of the Republic
New Civil Code because there was no meeting of the minds among
in the concept of an owner.
the other registered co-owners who gave no written authority to
Atanacio to transact on their behalf. Therefore, no contract was
On Marc 3, 2006, the RTC rendered judgment in favor of Unchuan.
perfected insofar as the portions or shares of the other registered co-
The RTC held that Atanacio was not legally authorized to act as the
owners or their heirs were concerned.
attorney-in-fact of his brothers and sisters and to transact on their
behalf because he was not clothed with a special power of attorney
Thus, the Court cannot give any weight either to the Deed of Partition
granting him authority to sell the disputed lots. "This lack of authority
of Lot No. 4810, Open Cadastre51 (subsequently executed by all the
of Atanacio Godinez, therefore, has an effect of making the contract
heirs of Ambrosio and Sotera Godinez to the effect that they had
of sale between the parties' predecessors-in-interest as void. The CA
acknowledged52 the sale of the subject lots in favor of CAA) or to other
affirmed the RTC decision.
documents (such as Joint Affidavit of Confirmation of Sale of Alloted
Shares Already Adjudicated and Quitclaim of a Portion of Lot No.
The OSG argues that "the mere absence of a special power of attorney
4810, Open Cadastre)53 all of which gave the impression that they had
in favor of Atanacio Godinez does not necessarily mean that he was
ratified54 the sale of the subject lots in favor of CAA, MCIAA's
not authorized by his co-owners who even authorized and represented
predecessor-in-interest.
to CAA that Atanacio Godinez was their attorney-in-fact."40 "Even
granting for the sake of argument that Atanacio Godinez was not in
The rule is that a void contract produces no effect either against or in
fact authorized by the other registered co-owners to execute a deed
favor of anyone and cannot be ratified.55 Similarly, laches will not set
conveying Lot Nos. 4810-A and 4810-B to CAA, such defect has
in against a void transaction, as in this case, where the agent did not
nevertheless been cured when his co-owners subsequently executed
have a special power of attorney to dispose of the lots co-owned by
on September 17, 1969 a public document denominated as Deed of
the other registered owners. In fact, Article 1410 of the Civil Code
Partition."41
specifically provides that an action to declare the inexistence of a void
contract does not prescribe.
ISSUE: Whether or not the Sales made by Atanacio was valid.

HELD: No. Article 1884

The Court finds that the sale transaction executed between Atanacio,
acting as an agent of his fellow registered owners, and the CAA was BA Finance vs. Court of Appeals
indeed void insofar as the other registered owners were concerned. G.R. No. 82040, August 27, 1991
They were represented without a written authority from them clearly
in violation of the requirement under Articles 1874 and 1878 of the FACTS: On July 15, 1977, private respondents Manuel Cuady and Lilia
Civil Code, which provide: Cuady obtained from Supercars, Inc. a credit of P39,574.80, which
amount covered the cost of one unit of Ford Escort 1300, four-door
Art. 1874. When a sale of a piece of land or any interest therein is sedan. To secure the faithful and prompt compliance of the obligation
through an agent, the authority of the latter shall be in writing; under the said promissory note, the Cuady spouses constituted a
otherwise, the sale shall be void. chattel mortage on the aforementioned motor vehicle. On July 25,
1977, Supercars, Inc. assigned the promissory note, together with the
Art. 1878. Special powers of attorney are necessary in the following chattel mortgage, to B.A. Finance Corporation.
cases:

x x x On April 18, 1980, the aforementioned motor vehicle figured in an

accident and was badly damaged. The unfortunate happening was
(5) To enter into any contract by which the ownership of an reported to the B.A. Finance Corporation and to the insurer, Zenith
immovable is transmitted or acquired either gratuitously or for a Insurance Corporation. The Cuadys asked the B.A. Finance
valuable consideration; Corporation to consider the same as a total loss, and to claim from
the insurer the face value of the car insurance policy and apply the
xxx same to the payment of their remaining account and give them the
surplus thereof, if any. But instead of heeding the request of the
The significance of requiring the authority of an agent to be put into Cuadys, B.A. Finance Corporation prevailed upon the former to just
writing was amplified in Dizon v. Court of Appeals:49 have the car repaired. Not long thereafter, however, the car bogged
down. The Cuadys wrote B.A. Finance Corporation requesting the
When the sale of a piece of land or any interest thereon is through an latter to pursue their prior instruction of enforcing the total loss
agent, the authority of the latter shall be in writing; otherwise, the provision in the insurance coverage. When B.A. Finance Corporation
sale shall be void. Thus the authority of an agent to execute a contract did not respond favorably to their request, the Cuadys stopped paying
for the sale of real estate must be conferred in writing and must give their monthly installments on the promissory note (Ibid., pp. 45).
him specific authority, either to conduct the general business of the
principal or to execute a binding contract containing terms and
conditions which are in the contract he did execute. A special power On June 29, 1982, in view of the failure of the Cuadys to pay the
of attorney is necessary to enter into any contract by which the remaining installments on the note, B.A. Finance Corporation sued
ownership of an immovable is transmitted or acquired either them in the Regional Trial Court of Manila, Branch 43, for the
gratuitously or for a valuable consideration. The express mandate recovery of the said remaining installments.
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
84
The trial court dismissed the complaint which was affirmed by the CA. On June 19, 1996, Agbisit executed her own Special Power of
Attorney, 8 appointing Milflores Cooperative as attorney-in-
fact in obtaining a loan from and executing a real mortgage
ISSUE: Whether or not BA Finance is liable to private respondents.
in favor of Land Bank of the Philippines (Land Bank).
HELD: Yes
Unfortunately, Milflorcs Cooperative was unable to pay its obligations
to Land Bank. Thus, Land Bank filed a petition for extra-judicial
B.A. Finance Corporation was deemed subrogated to the rights and
foreclosure sale with the Office of the Clerk of Court of Davao City
obligations of Supercars, Inc. when the latter assigned the promissory
note, together with the chattel mortgage constituted on the motor
vehicle in question in favor of the former. Consequently, B.A. Finance The Spouses Villaluz filed a complaint with the Regional Trial Court
Corporation is bound by the terms and conditions of the chattel (RTC) of Davao City seeking the annulment of the foreclosure sale.
mortgage executed between the Cuadys and Supercars, Inc. Under The sole question presented before the RTC was whether Agbisit
the deed of chattel mortgage, B.A. Finance Corporation was could have validly delegated her authority as attorney-in-fact to
constituted attorney-in-fact with full power and authority to file, Milflores Cooperative.
follow-up, prosecute, compromise or settle insurance claims; to sign
execute and deliver the corresponding papers, receipts and
Citing Article 1892 of the Civil Code, the RTC held that the delegation
documents to the Insurance Company as may be necessary to prove
was valid since the Special Power of Attorney executed by the Spouses
the claim, and to collect from the latter the proceeds of insurance to
Villaluz had no specific prohibition against Agbisit appointing a
the extent of its interests, in the event that the mortgaged car suffers
substitute. Accordingly, the RTC dismissed the complaint which was
any loss or damage (Rollo, p. 89). In granting B.A. Finance
affirmed by the Court of Appeals.
Corporation the aforementioned powers and prerogatives, the Cuady
spouses created in the former's favor an agency. Thus, under
Article 1884 of the Civil Code of the Philippines, B.A. Finance ISSUE: Whether or not the SPA executed by Agbisit was valid.
Corporation is bound by its acceptance to carry out the
agency, and is liable for damages which, through its non- HELD: Yes.
performance, the Cuadys, the principal in the case at bar, may
suffer. Articles 1892 and 1893 of the Civil Code provide the rules regarding
the appointment of a substitute by an agent:
Unquestionably, the Cuadys suffered pecuniary loss in the form of
salvage value of the motor vehicle in question, not to mention the Art. 1892. The agent may appoint a substitute if the principal has not
amount equivalent to the unpaid balance on the promissory note, prohibited him from doing so; but he shall be responsible for the acts
when B.A. Finance Corporation steadfastly refused and refrained from of the substitute:
proceeding against the insurer for the payment of a clearly valid
insurance claim, and continued to ignore the yearning of the Cuadys (1) When he was not given the power to appoint one;
to enforce the total loss provision in the insurance policy, despite the
undeniable fact that Rea Auto Center, the auto repair shop chosen by
the insurer itself to repair the aforementioned motor vehicle, (2) When he was given such power, but without designating the
misrepaired and rendered it completely useless and unserviceable person, and the person appointed was notoriously incompetent or
(Ibid., p. 31). insolvent.

Accordingly, there is no reason to depart from the ruling set down by All acts of the substitute appointed against the prohibition of the
the respondent appellate court. In this connection, the Court of principal shall be void.
Appeals said:
Art. 1893. In the cases mentioned in Nos. 1 and 2 of the preceding
... Under the established facts and circumstances, it is article, the principal may furthermore bring an action against the
unjust, unfair and inequitable to require the chattel substitute with respect to the obligations which the latter has
mortgagors, appellees herein, to still pay the unpaid contracted under the substitution.
balance of their mortgage debt on the said car, the non-
payment of which account was due to the stubborn refusal The law creates a presumption that an agent has the power to appoint
and failure of appellant mortgagee to avail of the insurance a substitute. The consequence of the presumption is that, upon valid
money which became due and demandable after the appointment of a substitute by the agent, there ipso jure arises an
insured motor vehicle was badly damaged in a vehicular agency relationship between the principal and the substitute, i.e., the
accident covered by the insurance risk. ... (Ibid.) substitute becomes the agent of the principal. As a result, the principal
is bound by the acts of the substitute as if these acts had been
performed by the principal's appointed agent. Concomitantly, the
Article 1892 substitute assumes an agent's obligations to act within the scope of
authority, 18 to act in accordance with the principal's
Villaluz vs. Land Bank instructions, 19 and to carry out the agency, 20 among others. In order
G.R. No. 192602, January 18, 2017 to make the presumption inoperative and relieve himself from its
effects, it is incumbent upon the principal to prohibit the agent from
appointing a substitute.
FACTS: Sometime in 1996, Paula Agbisit (Agbisit), mother of
petitioner May S. Villaluz (May), requested the latter to provide her
with collateral for a loan. May convinced her husband, Johnny Villaluz Although the law presumes that the agent is authorized to appoint a
(collectively, the Spouses Villaluz), to allow Agbisit to use their land, substitute, it also imposes an obligation upon the agent to exercise
located in Calinan, Davao. On March 25, 1996, the Spouses Villaluz this power conscientiously. To protect the principal, Article 1892
executed a Special Power of Attorney6 in favor of Agbisit authorizing allocates responsibility to the agent for the acts of the substitute when
her to, among others, "negotiate for the sale mortgage, or other forms the agent was not expressly authorized by the principal to appoint a
of disposition a parcel of land covered by Transfer Certificate of Title substitute; and, if so authorized but a specific person is not
No. T-202276" and "sign in our behalf all documents relating to the designated, the agent appoints a substitute who is notoriously
sale, loan or mortgage, or other disposition of the aforementioned incompetent or insolvent. In these instances, the principal has a right
property. "7 The one-page power of attorney neither specified of action against both the agent and the substitute if the latter
the conditions under which the special powers may be commits acts prejudicial to the principal.
exercised nor stated the amounts for which the subject land
may be sold or mortgaged.
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
85
The case of Escueta v. Lim21illustrates the prevailing rule. In that case, On the basis thereof, the Court of Appeals affirmed the decision of
the father, through a special power of attorney, appointed his the trial court ordering petitioner to refund to private respondent the
daughter as his attorney-in-fact for the purpose of selling real purchase price for the twelve (12) generators and to accept delivery
properties. The daughter then appointed a substitute or sub-agent to of the same and to pay s and attorney's fees.
sell the properties. After the properties were sold, the father sought
to nullify the sale effected by the subagent on the ground that he did
In this petition for review, SCHMID seeks reversal on the following
not authorize his daughter to appoint a subagent. We refused to
grounds:
nullify the sale because it is clear from the special power of attorney
executed by the father that the daughter is not prohibited from
appointing a substitute. Applying Article 1892, we held that the (i) Schmid was merely the indentor in the sale [of the twelve
daughter "merely acted within the limits of the authority given by her (12) generators] between Nagata Co., the exporter and RJL
father, but she will have to be 'responsible for the acts of the sub- Martinez, the importer;
agent,' among which is precisely the sale of the subject properties in
favor of respondent."22 (ii) as mere indentor, Schmid is not liable for the seller's
implied warranty against hidden defects, Schmid not having
In the present case, the Special Power of Attorney executed by the personally assumed any such warranty.
Spouses Villaluz contains no restrictive language indicative of an
intention to prohibit Agbisit from appointing a substitute or sub-agent. ISSUE: Whether or not petitioner is liable.
Thus, we agree with the findings of the CA and the RTC that Agbisit's
appointment of Milflores Cooperative was valid. HELD: No.

Article 1897 An indentor is a middlemen in the same class as commercial brokers

and commission merchants. To get an Idea of what an indentor is, a
look at the definition of those in his class may prove helpful.
Rustan Pulp vs. IAC
G.R. No. 70789, October 19, 1992 A broker is generally defined as one who is
engaged, for others, on a commission,
FACTS: When petitioners informed herein private respondents to stop negotiating contracts relative to property with the
the delivery of pulp wood supplied by the latter pursuant to a contract custody of which he has no concern; the
of sale between them, private respondents sued for breach of their negotiator between other parties, never acting in
covenant. Tantoco and Vergara were sued for their joint and several his own name but in the name of those who
liability as a result of the alleged breach of the contract. The trial court employed him; he is strictly a middleman and for
and the IAC ruled that both are not liable. some purpose the agent of both parties.

ISSUE: Whether or not Tantoco and Vergara are liable to private Thus, the chief feature of a commercial broker and a commercial
respondents. merchant is that in effecting a sale, they are merely intermediaries or
middle-men, and act in a certain sense as the agent of both parties
HELD: No. to the transaction.

Petitioners argue next that Tantoco and Vergara should not have been In view of the above considerations, this Court rules that SCHMID was
adjudged to pay moral damages and attorney's fees because Tantoco merely acting as an indentor in the purchase and sale of the twelve
merely represented the interest of Rustan Pulp and Paper Mills, Inc. (12) generators subject of the second transaction. Not being the
while Romeo S. Vergara was not privy to the contract of sale. On this vendor, SCHMID cannot be held liable for the implied warranty for
score, We have to agree with petitioners' citation of authority to the hidden defects under the Civil Code [Art. 1561, et seq.]
effect that the President and Manager of a corporation who entered
into and signed a contract in his official capacity, cannot be made
However, even as SCHMID was merely an indentor, there was nothing
liable thereunder in his individual capacity in the absence of stipulation
to prevent it from voluntarily warranting that twelve (12) generators
to that effect due to the personality of the corporation being separate
subject of the second transaction are free from any hidden defects.
and distinct from the person composing it (Bangued Generale Belge
In other words, SCHMID may be held answerable for some other
vs. Walter Bull and Co., Inc., 84 Phil. 164). And because of this
contractual obligation, if indeed it had so bound itself. As stated
precept, Vergara's supposed non-participation in the contract of sale
above, an indentor is to some extent an agent of both the vendor and
although he signed the letter dated September 30, 1968 is completely
the vendee. As such agent, therefore, he may expressly obligate
immaterial. The two exceptions contemplated by Article 1897 of the
himself to undertake the obligations of his principal (See Art. 1897,
New Civil Code where agents are directly responsible are absent and
Civil Code.)
wanting.

The Court's inquiry, therefore, shifts to a determination of whether or

Schmid and Oberly vs. RJL Martinez
not SCHMID expressly bound itself to warrant that the twelve (12)
G.R. No. 75198, October 18, 1988
generators are free of any hidden defects.
FACTS: That the plaintiff RJL Martinez Fishing Corporation is engaged
in deep-sea fishing, and in the course of its business, needed electrical Again, we consider the facts.
generators for the operation of its business; that the defendant sells
electrical generators with the brand of "Nagata", a Japanese product; The Quotation (Exhibit A is in writing. It is the repository of the
that the supplier is the manufacturer, the D. Nagata Co. Ltd., of Japan, contract between RJL MARTINEZ and SCHMID. Notably, nowhere is it
that the defendant Schmid & Oberly Inc. advertised the 12 Nagata stated therein that SCHMID did bind itself to answer for the defects
generators for sale; that the plaintiff purchased 12 brand new Nagata of the things sold. There being no allegation nor any proof that the
generators, as advertised by herein defendant; that the 12 generators Quotation does not express the true intent and agreement of the
were found to be factory defective; that the plaintiff informed the contracting parties, extrinsic parol evidence of warranty will be to no
defendant herein that it shall return the 12 generators as in fact three avail [See Rule 123, Sec. 22.]
of the 12 were actually returned to the defendant; that the plaintiff
sued the defendant on the warranty; asking for rescission of the
contract; that the defendant be ordered to accept the generators and
be ordered to pay back the purchase money; and that the
plaintiff asked for damages.
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
86

Eurotech Industrial vs. Cuizon, et. al. In this case, the parties do not dispute the existence of the agency
G.R. No. 167552, April 23, 2007 relationship between respondents ERWIN as principal and EDWIN as
agent. The only cause of the present dispute is whether respondent
FACTS: Petitioner is engaged in the business of importation and EDWIN exceeded his authority when he signed the Deed of
distribution of various European industrial equipment for customers Assignment thereby binding himself personally to pay the obligations
here in the Philippines. It has as one of its customers Impact Systems to petitioner. Petitioner firmly believes that respondent EDWIN acted
Sales ("Impact Systems") which is a sole proprietorship owned by beyond the authority granted by his principal and he should therefore
respondent ERWIN Cuizon (ERWIN). Respondent EDWIN is the sales bear the effect of his deed pursuant to Article 1897 of the New Civil
manager of Impact Systems and was impleaded in the court a quo in Code.
said capacity.
We disagree.
From January to April 1995, petitioner sold to Impact Systems various
products allegedly amounting to ninety-one thousand three hundred Article 1897 reinforces the familiar doctrine that an agent, who acts
thirty-eight (₱91,338.00) pesos. Subsequently, respondents sought to as such, is not personally liable to the party with whom he contracts.
buy from petitioner one unit of sludge pump valued at ₱250,000.00 The same provision, however, presents two instances when an agent
with respondents making a down payment of fifty thousand pesos becomes personally liable to a third person. The first is when he
(₱50,000.00).4 When the sludge pump arrived from the United expressly binds himself to the obligation and the second is when he
Kingdom, petitioner refused to deliver the same to respondents exceeds his authority. In the last instance, the agent can be held liable
without their having fully settled their indebtedness to petitioner. if he does not give the third party sufficient notice of his powers. We
Thus, on 28 June 1995, respondent EDWIN and Alberto de Jesus, hold that respondent EDWIN does not fall within any of the exceptions
general manager of petitioner, executed a Deed of Assignment of contained in this provision.
receivables from Toledo Power Company in favor of petitioner.
Following the execution of the Deed of Assignment, petitioner
delivered to respondents the sludge pump as shown by Invoice No. The Deed of Assignment clearly states that respondent EDWIN signed
12034 dated 30 June 1995.8 thereon as the sales manager of Impact Systems. As discussed
elsewhere, the position of manager is unique in that it presupposes
the grant of broad powers with which to conduct the business of the
Allegedly unbeknownst to petitioner, respondents, despite the principal, thus:
existence of the Deed of Assignment, proceeded to collect from
Toledo Power Company the amount of ₱365,135.29 as evidenced by
Check Voucher No. 09339 prepared by said power company and an The powers of an agent are particularly broad in the case of one acting
official receipt dated 15 August 1995 issued by Impact as a general agent or manager; such a position presupposes a degree
Systems.10 Alarmed by this development, petitioner made several of confidence reposed and investiture with liberal powers for the
demands upon respondents to pay their obligations. Because of exercise of judgment and discretion in transactions and concerns
respondents’ failure to abide by said demand letter, petitioner which are incidental or appurtenant to the business entrusted to his
instituted a complaint for sum of money, damages, with application care and management. In the absence of an agreement to the
for preliminary attachment against herein respondents before the contrary, a managing agent may enter into any contracts that he
Regional Trial Court of Cebu City.12 deems reasonably necessary or requisite for the protection of the
interests of his principal entrusted to his management. x x x.35

By way of special and affirmative defenses, respondent EDWIN

alleged that he is not a real party in interest in this case. According to Applying the foregoing to the present case, we hold that Edwin Cuizon
him, he was acting as mere agent of his principal, which was the acted well-within his authority when he signed the Deed of
Impact Systems, in his transaction with petitioner and the latter was Assignment. To recall, petitioner refused to deliver the one unit of
very much aware of this fact. sludge pump unless it received, in full, the payment for Impact
Systems’ indebtedness.36 We may very well assume that Impact
Systems desperately needed the sludge pump for its business since
The trial court rendered its assailed Order dated 29 January 2002 after it paid the amount of fifty thousand pesos (₱50,000.00) as down
dropping respondent EDWIN as a party defendant in this case. The payment on 3 March 1995,37 it still persisted in negotiating with
CA affirmed the decision of the trial court. petitioner which culminated in the execution of the Deed of
Assignment of its receivables from Toledo Power Company on 28 June
ISSUE: Whether or not Edwin is liable. 1995.38 The significant amount of time spent on the negotiation for
the sale of the sludge pump underscores Impact Systems’
HELD: No. perseverance to get hold of the said equipment. There is, therefore,
no doubt in our mind that respondent EDWIN’s participation in the
In a contract of agency, a person binds himself to render some service Deed of Assignment was "reasonably necessary" or was required in
or to do something in representation or on behalf of another with the order for him to protect the business of his principal. Had he not acted
latter’s consent.29 The underlying principle of the contract of agency in the way he did, the business of his principal would have been
is to accomplish results by using the services of others – to do a great adversely affected and he would have violated his fiduciary relation
variety of things like selling, buying, manufacturing, and with his principal.
transporting.30 Its purpose is to extend the personality of the principal
or the party for whom another acts and from whom he or she derives We likewise take note of the fact that in this case, petitioner is seeking
the authority to act.31 It is said that the basis of agency is to recover both from respondents ERWIN, the principal, and EDWIN,
representation, that is, the agent acts for and on behalf of the the agent. It is well to state here that Article 1897 of the New Civil
principal on matters within the scope of his authority and said acts Code upon which petitioner anchors its claim against respondent
have the same legal effect as if they were personally executed by the EDWIN "does not hold that in case of excess of authority, both the
principal.32 By this legal fiction, the actual or real absence of the agent and the principal are liable to the other contracting party."39 To
principal is converted into his legal or juridical presence – qui facit per reiterate, the first part of Article 1897 declares that the principal is
alium facit per se.33 liable in cases when the agent acted within the bounds of his
authority. Under this, the agent is completely absolved of any liability.
The elements of the contract of agency are: (1) consent, express or The second part of the said provision presents the situations when
implied, of the parties to establish the relationship; (2) the object is the agent himself becomes liable to a third party when he expressly
the execution of a juridical act in relation to a third person; (3) the binds himself or he exceeds the limits of his authority without giving
agent acts as a representative and not for himself; (4) the agent acts notice of his powers to the third person. However, it must be pointed
within the scope of his authority.34 out that in case of excess of authority by the agent, like what
petitioner claims exists here, the law does not say that a third person
can recover from both the principal and the agent.
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
87

Development Bank vs. Court of Appeals approved. The maximum age for MRI acceptance is 60 years as clearly
G.R. No. 109937, March 21, 1994 and specifically provided in Article 1 of the Group Mortgage
Redemption Insurance Policy signed in 1984 by all the insurance
FACTS: Juan B. Dans, together with his wife Candida, his son and companies concerned (Exh. "1-Pool").
daughter-in-law, applied for a loan with the Development Bank of the
Philippines (DBP), Basilan Branch. As the principal mortgagor, Dans, Under Article 1987 of the Civil Code of the Philippines, "the agent who
then 76 years of age, was advised by DBP to obtain a mortgage acts as such is not personally liable to the party with whom he
redemption insurance (MRI) with the DBP Mortgage Redemption contracts, unless he expressly binds himself or exceeds the limits of
Insurance Pool (DBP MRI Pool). his authority without giving such party sufficient notice of his powers."

A loan, in the reduced amount of P300,000.00, was approved by DBP The DBP is not authorized to accept applications for MRI when its
on August 4, 1987 and released on August 11, 1987. From the clients are more than 60 years of age (Exh. "1-Pool"). Knowing all the
proceeds of the loan, DBP deducted the amount of P1,476.00 as while that Dans was ineligible for MRI coverage because of his
payment for the MRI premium. On August 15, 1987, Dans advanced age, DBP exceeded the scope of its authority when it
accomplished and submitted the "MRI Application for Insurance" and accepted Dan's application for MRI by collecting the insurance
the "Health Statement for DBP MRI Pool." premium, and deducting its agent's commission and service fee.

On August 20, 1987, the MRI premium of Dans, less the DBP service The liability of an agent who exceeds the scope of his authority
fee of 10 percent, was credited by DBP to the savings account of the depends upon whether the third person is aware of the limits of the
DBP MRI Pool. Accordingly, the DBP MRI Pool was advised of the agent's powers. There is no showing that Dans knew of the limitation
credit. on DBP's authority to solicit applications for MRI.

On September 3, 1987, Dans died of cardiac arrest. The DBP, upon If the third person dealing with an agent is unaware of the limits of
notice, relayed this information to the DBP MRI Pool. On September the authority conferred by the principal on the agent and he (third
23, 1987, the DBP MRI Pool notified DBP that Dans was not eligible person) has been deceived by the non-disclosure thereof by the
for MRI coverage, being over the acceptance age limit of 60 years at agent, then the latter is liable for damages to him (V Tolentino,
the time of application. Commentaries and Jurisprudence on the Civil Code of the Philippines,
p. 422 [1992], citing Sentencia [Cuba] of September 25, 1907). The
On October 21, 1987, DBP apprised Candida Dans of the disapproval rule that the agent is liable when he acts without authority is founded
of her late husband's MRI application. upon the supposition that there has been some wrong or omission on
his part either in misrepresenting, or in affirming, or concealing the
authority under which he assumes to act (Francisco, V., Agency 307
On February 10, 1989, respondent Estate, through Candida Dans as [1952], citing Hall v. Lauderdale, 46 N.Y. 70, 75). Inasmuch as the
administratrix, filed a complaint with the Regional Trial Court, Branch non-disclosure of the limits of the agency carries with it the implication
I, Basilan, against DBP and the insurance pool for "Collection of Sum that a deception was perpetrated on the unsuspecting client, the
of Money with Damages." Respondent Estate alleged that Dans provisions of Articles 19, 20 and 21 of the Civil Code of the Philippines
became insured by the DBP MRI Pool when DBP, with full knowledge come into play.
of Dans' age at the time of application, required him to apply for MRI,
and later collected the insurance premium thereon.
Article 1898
On March 10, 1990, the trial court rendered a decision in favor of
respondent Estate and against DBP. The DBP MRI Pool, however, was
Safic Alcan vs. Imperial Vegetable
absolved from liability, after the trial court found no privity of contract
G.R. No. 126751, March 28, 2001
between it and the deceased. The trial court declared DBP in estoppel
for having led Dans into applying for MRI and actually collecting the
premium and the service fee, despite knowledge of his age FACTS: Petitioner Safic Alcan & Cie (hereinafter, "Safic") is a French
ineligibility. In a decision dated September 7, 1992, the appellate corporation engaged in the international purchase, sale and trading
court affirmed in toto the decision of the trial court. The DBP's motion of coconut oil. It filed with the Regional Trial Court of Manila, Branch
for reconsideration was denied in a resolution dated April 20, 1993. XXV, a complaint dated February 26, 1987 against private respondent
Imperial Vegetable Oil Co., Inc. (hereinafter, "IVO"), docketed as Civil
Case No. 87- 39597. Petitioner Safic alleged that on July 1, 1986 and
ISSUE: Whether or not DBP is liable. September 25, 1986, it placed purchase orders with IVO for 2,000
long tons of crude coconut oil, valued at US$222.50 per ton, covered
HELD:Yes. by Purchase Contract Nos. A601446 and A601655, respectively, to be
delivered within the month of January 1987. Private respondent,
It was DBP, as a matter of policy and practice, that required Dans, however, failed to deliver the said coconut oil and, instead, offered a
the borrower, to secure MRI coverage. Instead of allowing Dans to "wash out" settlement, whereby the coconut oil subject of the
look for his own insurance carrier or some other form of insurance purchase contracts were to be "sold back" to IVO at the prevailing
policy, DBP compelled him to apply with the DBP MRI Pool for MRI price in the international market at the time of wash out. Thus, IVO
coverage. When Dan's loan was released on August 11, 1987, DBP bound itself to pay to Safic the difference between the said prevailing
already deducted from the proceeds thereof the MRI premium. Four price and the contract price of the 2,000 long tons of crude coconut
days latter, DBP made Dans fill up and sign his application for MRI, as oil, which amounted to US$293,500.00. IVO failed to pay this amount
well as his health statement. The DBP later submitted both the despite repeated oral and written demands.
application form and health statement to the DBP MRI Pool at the DBP
Main Building, Makati Metro Manila. As service fee, DBP deducted 10 Under its second cause of action, Safic alleged that on eight occasions
percent of the premium collected by it from Dans. between April 24, 1986 and October 31, 1986, it placed purchase
orders with IVO for a total of 4,750 tons of crude coconut oil, covered
In dealing with Dans, DBP was wearing two legal hats: the first as a by Purchase Contract Nos. A601297A/B, A601384, A601385,
lender, and the second as an insurance agent. A601391, A601415, A601681, A601683 and A601770A/B/C/. When
IVO failed to honor its obligation under the wash out settlement
narrated above, Safic demanded that IVO make marginal deposits
As an insurance agent, DBP made Dans go through the motion of within forty-eight hours on the eight purchase contracts in amounts
applying for said insurance, thereby leading him and his family to equivalent to the difference between the contract price and the
believe that they had already fulfilled all the requirements for the MRI market price of the coconut oil, to compensate it for the damages it
and that the issuance of their policy was forthcoming. Apparently, DBP suffered when it was forced to acquire coconut oil at a higher price.
had full knowledge that Dan's application was never going to be
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
88
In its answer, IVO raised the following special affirmative defenses: in case either is controverted, the burden of proof is upon
the subject contracts were speculative contracts entered into by IVO's them to establish it.11
then President, Dominador Monteverde, in contravention of the
prohibition by the Board of Directors against engaging in speculative
The most prudent thing petitioner should have done was to ascertain
paper trading, and despite IVO's lack of the necessary license from
the extent of the authority of Dominador Monteverde. Being remiss in
Central Bank to engage in such kind of trading activity; Meanwhile,
this regard, petitioner cannot seek relief on the basis of a supposed
the 1986 contracts stipulated that the coconut oil were to be delivered
agency.
within period ranging from eight months to eleven to twelve months
after the placing of orders. The coconuts that were supposed to be
milled were in all likelihood not yet growing when Dominador Under Article 189812 of the Civil Code, the acts of an agent beyond
Monteverde sold the crude coconut oil. As such, the 1986 contracts the scope of his authority do not bind the principal unless the latter
constituted trading in futures or in mere expectations. ratifies the same expressly or impliedly. It also bears emphasizing that
when the third person knows that the agent was acting beyond his
power or authority, the principal cannot be held liable for the acts of
The lower court further held that the subject contracts were ultra
the agent. If the said third person is aware of such limits of authority,
vires and were entered into by Dominador Monteverde without
he is to blame, and is not entitled to recover damages from the agent,
authority from the Board of Directors. On September 12, 1996, the
unless the latter undertook to secure the principal's ratification.13
Court of Appeals rendered the assailed Decision dismissing the,
appeals and affirming the judgment appealed from in toto.4
There was no such ratification in this case. When Monteverde entered
into the speculative contracts with Safic, he did not secure the Board's
ISSUE: Whether or not IVO's President, Dominador Monteverde,
approval.14 He also did not submit the contracts to the Board after
validly entered into the 1986 contracts for and on behalf of IVO.
their consummation so there was, in fact, no occasion at all for
ratification. The contracts were not reported in IVO's export sales
HELD: No. book and turn-out book.15 Neither were they reflected in other books
and records of the corporation.16 It must be pointed out that the Board
of Directors, not Monteverde, exercises corporate power.17 Clearly,
Monteverde's speculative contracts with Safic never bound IVO and
Article III, Section 3 [g] of the By-Laws5 of IVO provides, among
Safic cannot therefore enforce those contracts against IVO.
others, that –

Section 3. Powers and Duties of the President. - The Cervantes vs. Court of Appeals
President shall be elected by the Board of Directors from G.R. No. 125138, March 2, 1999
their own number .
FACTS: On March 27, 1989, the private respondent, Philippines Air
Lines, Inc. (PAL), issued to the herein petitioner, Nicholas
He shall have the following duties: Cervantes (Cervantes), a round trip plane ticket for Manila-Honolulu-
Los Angeles-Honolulu-Manila, which ticket expressly provided an
xxxxxxxxx expiry of date of one year from issuance, i.e., until March 27, 1990.
The issuance of the said plane ticket was in compliance with a
Compromise Agreement entered into between the contending parties
[g] Have direct and active management of the business and in two previous suits, docketed as Civil Case Nos. 3392 and 3451
operation of the corporation, conducting the same before the Regional Trial Court in Surigao City. 2
according to, the orders, resolutions and instruction of the
Board of Directors and according to his own discretion
whenever and wherever the same is not expressly limited On March 23, 1990, four days before the expiry date of subject ticket,
by such orders, resolutions and instructions. the petitioner used it. Upon his arrival in Los Angeles on the same
day, he immediately booked his Los Angeles-Manila return ticket with
the PAL office, and it was confirmed for the April 2, 1990 flight.
It can be clearly seen from the foregoing provision of IVO's By-laws
that Monteverde had no blanket authority to bind IVO to any contract.
He must act according to the instructions of the Board of Directors. Upon learning that the same PAL plane would make a stop-over in
Even in instances when he was authorized to act according to his San Francisco, and considering that he would be there on April 2,
discretion, that discretion must not conflict with prior Board orders, 1990, petitioner made arrangements with PAL for him to board the
resolutions and instructions. The evidence shows that the IVO Board flight In San Francisco instead of boarding in Los Angeles.
knew nothing of the 1986 contracts6 and that it did not authorize
Monteverde to enter into speculative contracts.7 In fact, Monteverde On April 2, 1990, when the petitioner checked in at the PAL counter
had earlier proposed that the company engage in such transactions in San Francisco, he was not allowed to board. The PAL personnel
but the IVO Board rejected his proposal.8 Since the 1986 contracts concerned marked the following notation on his ticket: "TICKET NOT
marked a sharp departure from past IVO transactions, Safic should ACCEPTED DUE EXPIRATION OF VALIDITY."
have obtained from Monteverde the prior authorization of the IVO
Board. Safic can not rely on the doctrine of implied agency because
before the controversial 1986 contracts, IVO did not enter into Aggrieved, petitioner Cervantes filed a Complaint for Damages, for
identical contracts with Safic. The basis for agency is representation breach of contract of carriage.
and a person dealing with an agent is put upon inquiry and must
discover upon his peril the authority of the agent.9 In the case The trial court dismissed the complaint which was affirmed by the CA.
of Bacaltos Coal Mines v. Court of Appeals,10 we elucidated the rule
on dealing with an agent thus:
ISSUE: Whether or not the act of the PAL agents in confirming
subject ticket extended the period of validity of petitioner's ticket.
Every person dealing with an agent is put upon inquiry and
must discover upon his peril the authority of the agent. If
he does not make such inquiry, he is chargeable with HELD: No.
knowledge of the agent's authority, and his ignorance of
that authority will not be any excuse. Persons dealing with Petitioner theorized that the confirmation by the PAL's agents in Los
an assumed agent, whether the assumed agency be a Angeles and San Francisco changed the compromise agreement
general or special one, are bound at their peril, if they would between the parties.
hold the principal, to ascertain not only the fact of the
agency but also the nature and extent of the authority, and
As aptly by the appellate court:
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
89
. . . on March 23, 1990, he was aware of the risk that his De Guzman. The deed expressly stated that Santos was "representing
ticket could expire, as it did, before he returned to the Siredy Enterprises, Inc." Private respondent was referred to as
Philippines.' (pp. 320-321, Original Records) 8 "contractor" while petitioner Siredy was cited as "principal". In said
Deed of Agreement, De Guzman will build houses at Ysmael Village.
The question is: "Did these two (2) employees, in effect,
From October 1978 to April 1990, De Guzman constructed 26
extend the validity or lifetime of the ticket in question? The
residential units at Ysmael Village. Thirteen (13) of these were fully
answer is in the negative. Both had no authority to do so.
paid but the other 13 remained unpaid. The total contractual price of
Appellant knew this from the very start when he called up
these 13 unpaid houses is P412,154.93 which was verified and
the Legal Department of appellee in the Philippines before
confirmed to be correct by Santos, per an Accomplishment Billing 11
he left for the United States of America. He had first hand
that the latter signed.
knowledge that the ticket in question would expire on
March 27, 1990 and that to secure an extension, he would
De Guzman tried but failed to collect the unpaid account from
have to file a written request for extension at the PAL's
petitioner. Thus, he instituted the action below for specific
office in the Philippines (TSN, Testimony of Nicholas
performance against Siredy, Yanga, and Santos who all
Cervantes, August 2, 1991, pp. 20-23). Despite this
denied liability.
knowledge, appellant persisted to use the ticket in
question." 9
During the trial, Santos disappeared and his whereabouts remain
unknown.
From the aforestated facts, it can be gleaned that the petitioner was
fully aware that there was a need to send a letter to the legal counsel In its defense, petitioner presented testimonial evidence to the effect
of PAL for the extension of the period of validity of his ticket. that Siredy had no contract with De Guzman and had not authorized
Santos to enter into a contract with anyone for the construction of
Since the PAL agents are not privy to the said Agreement and housing units at Ysmael Village.
petitioner knew that a written request to the legal counsel of PAL was
necessary, he cannot use what the PAL agents did to his advantage. The trial court agreed with petitioner based on the doctrine of privity
The said agents, according to the Court of Appeals, 10 acted without of contract. However, the CA reversed the decision of the trial court.
authority when they confirmed the flights of the petitioner.
Testifying on the nature of the business and the business practices of
Siredy, its owner Yanga testified 21 that Siredy was interested only in
Under Article 1898 11 of the New Civil Code, the acts an agent beyond the sale of lots. It was up to the buyers, as owners, to construct their
the scope of his authority do not bind the principal, unless the latter houses in the particular style they prefer. It was allegedly never the
ratifies the same expressly or impliedly. Furthermore, when the third practice of the company to sell lots with houses already erected
person (herein petitioner) knows that the agent was acting beyond thereon. On the basis of the foregoing testimony, petitioner states
his power or authority, the principal cannot be held liable for the acts that "despite the letter of authority, it is quite certain that such
of the agent. If the said third person is aware of such limits of provision would go against the nature of the business of Siredy as the
authority, he is to blame, and is not entitled to recover damages from same has absolutely no capability of undertaking such a task as
the agent, unless the latter undertook to secure the principal's constructing houses.
ratification.
ISSUE: Assuming arguendo that Siredy was bound by the acts of
Article 1900 Santos, whether or not under the terms of the Deed of Agreement,
Siredy can be held liable for the amount sought to be collected by
private respondent De Guzman.
Siredy vs. Court of Appeals
G.R. No. 129039, September HELD: Yes.

FACTS: Private respondent Conrado De Guzman is an architect- Moreover, even if arguendo Santos’ mandate was only to sell
contractor doing business under the name and style of Jigscon subdivision lots as Siredy asserts, the latter is still bound to pay De
Construction. Herein petitioner Siredy Enterprises, Inc. (hereafter Guzman. De Guzman is considered a third party to the agency
Siredy) is the owner and developer of Ysmael Village, a subdivision in agreement who had no knowledge of the specific instructions or
Sta. Cruz, Marilao, Bulacan. The president of Siredy is Ismael E. agreements between Siredy and its agent. What De Guzman only saw
Yanga. was the written Letter of Authority where Santos appears to be duly
authorized. Article 1900 of the Civil Code provides:
As stated in its Articles of Incorporation, the primary corporate
purpose of Siredy is to acquire lands, subdivide and develop them, Art. 1900. So far as third persons are concerned, an act is deemed to
erect buildings and houses thereon, and sell, lease or otherwise have been performed within the scope of the agent’s authority, if such
dispose of said properties to interested buyers. act is within the terms of the power of attorney, as written, even if
the agent has in fact exceeded the limits of his authority according to
Sometime before October 1978, Yanga executed an undated Letter of an understanding between the principal and the agent.
Authority, hereunder reproduced verbatim:
The scope of the agent’s authority is what appears in the written
KNOW ALL MEN BY THESE PRESENTS: terms of the power of attorney. While third persons are bound to
inquire into the extent or scope of the agent’s authority, they are not
That I, DR. ISMAEL E. YANGA, SR., of legal age, Filipino, married, required to go beyond the terms of the written power of attorney.
resident of and with Postal address at Poblacion, Bocaue, Bulacan and Third persons cannot be adversely affected by an understanding
duly authorized to execute this LETTER OF AUTHORITY, do hereby between the principal and his agent as to the limits of the latter’s
authorize MR. HERMOGENES B. SANTOS of legal age, Filipino, authority. In the same way, third persons need not concern
married, resident of and with Postal Address at 955 Banawe St., themselves with instructions given by the principal to his agent
Quezon City to do and execute all or any of the following acts: outside of the written power of attorney.chanrob1es virtua1 1aw
1ibrary
1. To negotiate and enter into contract or contracts to build Housing
Units on our subdivision lots in Ysmael Village, Sta. Rosa, Marilao, The essence of agency being the representation of another, it is
Bulacan. evident that the obligations contracted are for and on behalf of the
principal. This is what gives rise to the juridical relation. A
Xxxx consequence of this representation is the liability of the principal for
the acts of his agent performed within the limits of his authority that
On October 15, 1978, Santos entered into a Deed of Agreement with is equivalent to the performance by the principal himself who should
answer therefor. 27
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
90
was not established that the petitioners received any confirmation of
Petitioner belatedly asserts, however, that the Letter of Authority was the hotel reservations they sent and yet they did not follow up their
defective as it allegedly failed to reduce into writing the real intentions request nor did they inform Alcuaz that they had not received
of the parties, and insists on its reformation. confirmation. This procedure should have been followed by the
petitioners as so provided in the Travel Pass '73 USA.
Such an argument deserves scant consideration. As found by the
Court of Appeals, being a doctor of medicine and a businessman,
Metropolitan Bank vs. Court of Apppeals
Yanga knew the meaning and import of this document and had in fact
G.R. No. 88866, February 18, 1991
admitted having signed it. As aptly observed by the Court of Appeals,
there is no evidence that ante litem, he abrogated the Letter of
Authority and withdrew the power conferred on Santos. FACTS: The Metropolitan Bank and Trust Co. is a commercial bank
with branches throughout the Philippines and even abroad. Golden
Savings and Loan Association was, at the time these events
Article 1909 happened, operating in Calapan, Mindoro, with the other private
respondents as its principal officers.
Travel Wide vs. Court of Appeals
G.R. No. 77356, July 15, 1991 In January 1979, a certain Eduardo Gomez opened an account with
Golden Savings and deposited over a period of two months 38
FACTS: Sometime in March 1975, Decision Systems Corporation and treasury warrants with a total value of P1,755,228.37. They were all
its President, Manuel A. Alcuaz, Jr., filed a complaint in the Regional drawn by the Philippine Fish Marketing Authority and purportedly
Trial Court of Manila alleging that defendants Travel Wide Associated signed by its General Manager and countersigned by its Auditor. Six
Sales (Phils.), Inc. and Trans World Airlines, Inc. had failed to comply of these were directly payable to Gomez while the others appeared to
with their obligations under Travel Pass '73 U.S.A., a package deal have been indorsed by their respective payees, followed by Gomez as
consisting of a TWA ticket to Los Angeles, New York and Boston, in second indorser.1
the United States, and hotel accommodations, for which the plaintiffs
had made the corresponding payment in Manila. On various dates between June 25 and July 16, 1979, all these
warrants were subsequently indorsed by Gloria Castillo as Cashier of
On September 5, 1975, the defendants filed a joint answer in which Golden Savings and deposited to its Savings Account No. 2498 in the
they alleged the special defense that they were not the real parties- Metrobank branch in Calapan, Mindoro. They were then sent for
in-interest because they had acted only as agents of a disclosed clearing by the branch office to the principal office of Metrobank,
principal. which forwarded them to the Bureau of Treasury for special clearing.2

After the preliminary hearing, Judge Bernardo P. Fernandez issued his More than two weeks after the deposits, Gloria Castillo went to the
order dated September 13, 1976, dismissing the complaint.1 His Calapan branch several times to ask whether the warrants had been
finding was that Travel Wide was only the general agent of TWA and cleared. She was told to wait. Accordingly, Gomez was meanwhile not
that the latter was only an agent of a disclosed principal, namely, Tour allowed to withdraw from his account. Later, however, "exasperated"
Services, Inc. As neither of the defendants was a real party-in- over Gloria's repeated inquiries and also as an accommodation for a
interest, there could be no cause of action against them. This was "valued client," the petitioner says it finally decided to allow Golden
reversed by the Intermediate Appellate Court. Savings to withdraw from the proceeds of the warrants.3

ISSUE: Whether or not TWAS is liable. The first withdrawal was made on July 9, 1979, in the amount of
P508,000.00, the second on July 13, 1979, in the amount of
HELD: Yes. P310,000.00, and the third on July 16, 1979, in the amount of
P150,000.00. The total withdrawal was P968.000.00.4
In disclaiming liability, the petitioners point to the stipulation on
Responsibility in the Travel Pass '73 Plan brochure that "Tour Services, In turn, Golden Savings subsequently allowed Gomez to make
Inc. and/or their agents" are acting "as agents for the passengers." withdrawals from his own account, eventually collecting the total
They stress further that the Miscellaneous Charge Order issued to amount of P1,167,500.00 from the proceeds of the apparently cleared
Alcuaz indicated that the amount of $218.00 was payable to Tour warrants.
Services, Inc. and not to either of them. This would mean that, if at
all, they were acting as agents of Tour Services, Inc. and not as
On July 21, 1979, Metrobank informed Golden Savings that 32 of the
principal obligors.
warrants had been dishonored by the Bureau of Treasury on July 19,
1979, and demanded the refund by Golden Savings of the amount it
Without arriving at any factual conclusion, the Court believes it would had previously withdrawn, to make up the deficit in its account.
be useful to make a careful appraisal of the evidence, particularly the
terms and conditions of the brochure distributed by the petitioners
The demand was rejected. Metrobank then sued Golden Savings in
and the significance of the Miscellaneous Charges Order which was
the Regional Trial Court of Mindoro. The trial court dismissed the
issued by TWA. We note that even the trial court observed the active
complaint of MBTC which was later affirmed by the CA, on appeal.
participation of TWA in the promotion of the travel pass plan as an
additional source of revenue for its airline business.
ISSUE: Whether or not Metrobank is liable.
It is also worth noting that if the petitioners were indeed acting as
HELD: Yes.
agents of the passengers, as the brochure stipulates, they could still
be held liable under Article 1909 of the Civil Code, which provides:
From the above undisputed facts, it would appear to the Court that
Metrobank was indeed negligent in giving Golden Savings the
The agent is responsible not only for fraud, but also for
impression that the treasury warrants had been cleared and that,
negligence, which shall be judged with more or less rigor
consequently, it was safe to allow Gomez to withdraw the proceeds
by the courts, according to whether the agency was or was
thereof from his account with it. Without such assurance, Golden
not for a compensation.
Savings would not have allowed the withdrawals; with such
assurance, there was no reason not to allow the withdrawal. Indeed,
The private respondent * is entitled to prove that the petitioners did Golden Savings might even have incurred liability for its refusal to
not provide adequately for the pre-paid hotel accommodations of return the money that to all appearances belonged to the depositor,
Alcuaz, who had to incur additional expenses and was compelled to who could therefore withdraw it any time and for any reason he saw
cut short his business trip because of his depleted dollar allocation. It fit.
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
91
It was, in fact, to secure the clearance of the treasury warrants that
Golden Savings deposited them to its account with Metrobank. Golden
Article 1919
Savings had no clearing facilities of its own. It relied on Metrobank to
determine the validity of the warrants through its own services. The Buado vs. Layag
proceeds of the warrants were withheld from Gomez until Metrobank A.C. 5182, August 12, 2004
allowed Golden Savings itself to withdraw them from its own
deposit.7 It was only when Metrobank gave the go-signal that Gomez
FACTS: Herein complainant Lising and her sister, Rosita de Guzman
was finally allowed by Golden Savings to withdraw them from his own
(mother of herein complainant Susana de Guzman Buado), were the
account.
plaintiffs in Civil Case No. C-14265, entitled Rosita de Guzman, et al.,
v. Inland Trailways, Inc., which was decided by the RTC of Caloocan
Metrobank would invoke the conditions printed on the dorsal side of City, Branch 121, in favor of the plaintiffs on May 16, 1991. Both Lising
the deposit slips through which the treasury warrants were deposited and de Guzman were represented in said case by herein respondent,
by Golden Savings with its Calapan branch. The conditions read as Atty. Layag.
follows:
In its decision dated January 5, 1995, the appellate court affirmed the
Kindly note that in receiving items on deposit, the bank judgment of the trial court. However, on July 3, 1993, or while CA-
obligates itself only as the depositor's collecting agent, G.R. CV No. 34012 was pending before the appellate court, de
assuming no responsibility beyond care in selecting Guzman died.
correspondents, and until such time as actual payment shall
have come into possession of this bank, the right is
Pursuant to the judgment against it, Inland Trailways, Inc., issued
reserved to charge back to the depositor's account any checks payable to Atty. Layag. The laywer also did not inform Lising
amount previously credited, whether or not such item is
and the heirs.
returned. This also applies to checks drawn on local banks
and bankers and their branches as well as on this
bank, which are unpaid due to insufficiency of funds, It was only in February 1998 that Lising and de Guzman Buado, while
forgery, unauthorized overdraft or any other reason. checking the status of Civil Case No. C-14265, found that judgment
(Emphasis supplied.) had been rendered in the said case and that the losing party had paid
the damages awarded by issuing checks which were received by their
counsel, Atty. Layag, two years earlier. De Guzman Buado and Lising
According to Metrobank, the said conditions clearly show that it was
then made demands upon Atty. Layag to give them the proceeds of
acting only as a collecting agent for Golden Savings and give it the
the checks, but to no avail. Marie Paz Gonzales eventually gave
right to "charge back to the depositor's account any amount
Lising P10,000. No further amounts were remitted to either Lising or
previously credited, whether or not such item is returned. This also
de Guzman Buado despite demands by them.
applies to checks ". . . which are unpaid due to insufficiency of funds,
forgery, unauthorized overdraft of any other reason." It is claimed
that the said conditions are in the nature of contractual stipulations Atty. Layag alleged that he did not remit the payments because of an
and became binding on Golden Savings when Gloria Castillo, as its SPA executed by de Guzman which allowed him to do so.
Cashier, signed the deposit slips.
The IBP held Atty. Layag liable.
Doubt may be expressed about the binding force of the conditions,
considering that they have apparently been imposed by the bank ISSUE: Whether or not Atty. Layag is liable.
unilaterally, without the consent of the depositor. Indeed, it could be
argued that the depositor, in signing the deposit slip, does so only to HELD: Yes.
identify himself and not to agree to the conditions set forth in the
given permit at the back of the deposit slip. We do not have to rule On the Special Power of Attorney11 purportedly executed by Rosita
on this matter at this time. At any rate, the Court feels that even if de Guzman in favor of Marie Paz Gonzales, the Investigating
the deposit slip were considered a contract, the petitioner could still Commissioner held that even assuming arguendo that there was
not validly disclaim responsibility thereunder in the light of the indeed a Special Power of Attorney, it nonetheless had no force and
circumstances of this case. effect after the death of Rosita de Guzman. Hence, any authority she
had conferred upon Gonzales was already extinguished. According to
In stressing that it was acting only as a collecting agent for Golden the IBP Investigating Commissioner, since respondent represented de
Savings, Metrobank seems to be suggesting that as a mere agent it Guzman in Civil Case No. C-14265, upon her death, respondent had
cannot be liable to the principal. This is not exactly true. On the the obligation to preserve whatever benefits accrued to the decedent
contrary, Article 1909 of the Civil Code clearly provides that — on behalf of and for the benefit of her lawful heirs.

Art. 1909. — The agent is responsible not only for fraud, After careful scrutiny of the proceedings conducted by the IBP
but also for negligence, which shall be judged 'with more Investigating Commissioner, we find that the factual findings made in
or less rigor by the courts, according to whether the agency her report and recommendation are well supported by the evidence
was or was not for a compensation. on record. Respondent Atty. Layag does not deny receiving the checks
in question, but he claimed he turned over said checks to Marie Paz
Gonzales, pursuant to the alleged Special Power of Attorney executed
The negligence of Metrobank has been sufficiently established. To
by Rosita de Guzman in favor of Gonzales, authorizing the latter to
repeat for emphasis, it was the clearance given by it that assured
encash, indorse, or deposit any check received as a result of the
Golden Savings it was already safe to allow Gomez to withdraw the
judgment in Civil Case No. C-14265. Respondent contended that in so
proceeds of the treasury warrants he had deposited
doing, he was being true to the wishes and desires of his client, the
Metrobank misled Golden Savings. There may have been no express
late Rosita de Guzman.
clearance, as Metrobank insists (although this is refuted by Golden
Savings) but in any case that clearance could be implied from its
allowing Golden Savings to withdraw from its account not only once The respondent's arguments fail to persuade us. As a lawyer, with
or even twice but three times. The total withdrawal was in excess of more than thirty (30) years in practice, respondent is charged with
its original balance before the treasury warrants were deposited, knowledge of the law. He should know that it was error for him to rely
which only added to its belief that the treasury warrants had indeed on a Special Power of Attorney after the death of the principal, Rosita
been cleared. de Guzman. As pointed out by the IBP Investigating Commissioner,
even assuming there was a Special Power of Attorney, although
respondent could not produce a copy nor prove its existence, when
de Guzman died that document ceased to be operative. This is clear
from Article 191913 of the Civil Code. While there are instances, as
 ADDU LAW PARTNERSHIP, TRUST & AGENCY with Atty. Raymund Christian Ong Abrantes_
92
provided in Article 1930, 14 where the agency is not extinguished by continued to act as her agent when, on April 5, 1979, it filed her
the death of the principal, the instant case does not fall under the Income Tax Return for the year 1978.
exceptions. Clearly, at the time Atty. Layag received and turned over
the checks corresponding to the award of damages in Civil Case No.
Since the relationship between Philtrust and the decedent was
C-14265 in February 1996, there was no longer any valid Special
automatically severed at the moment of the Taxpayer’s
Power of Attorney. Again, as pointed out by the IBP Investigating
death, none of Philtrust’s acts or omissions could bind the estate of
Commissioner, respondent's duty when the award of damages was
the Taxpayer. Service on Philtrust of the demand letter and
made, was to preserve and deliver the amount received to the heirs
Assessment Notice No. NARD-78-82-00501 was improperly done.
of his client, de Guzman, and not to any other person.

Estate of Diez vs. CIR It must be noted that Philtrust was never appointed as the
G.R. No. 155541, January 27, 2004 administrator of the Estate of the decedent, and, indeed, that the
court a quo twice rejected Philtrust’s motion to be thus appointed. As
FACTS: During the lifetime of the decedent, Juliana Vda. De Gabriel, of November 18, 1982, the date of the demand letter and Assessment
her business affairs were managed by the Philippine Trust Company Notice, the legal relationship between the decedent and Philtrust had
(Philtrust). The decedent died on April 3, 1979. Two days after her already been non-existent for three years.
death, Philtrust, through its Trust Officer, Atty. Antonio M. Nuyles,
filed her Income Tax Return for 1978. The return did not indicate that Respondent claims that Section 104 of the National Internal Revenue
the decedent had died. Code of 1977 imposed the legal obligation on Philtrust to inform
respondent of the decedent’s death.
In the meantime, the Bureau of Internal Revenue conducted an
administrative investigation on the decedent’s tax liability and found - FINIS -
a deficiency income tax for the year 1977 in the amount of
P318,233.93. Thus, on November 18, 1982, the BIR sent by registered
mail a demand letter and Assessment Notice No. NARD-78-82-00501
addressed to the decedent "c/o Philippine Trust Company, Sta. Cruz,
Manila" which was the address stated in her 1978 Income Tax Return.
No response was made by Philtrust. The BIR was not informed that
the decedent had actually passed away.

On June 18, 1984, respondent Commissioner of Internal Revenue

issued warrants of distraint and levy to enforce collection of the
decedent’s deficiency income tax liability, which were served upon her
heir, Francisco Gabriel. On November 22, 1984, respondent filed a
"Motion for Allowance of Claim and for an Order of Payment of Taxes"
with the court a quo. On January 7, 1985, Mr. Ambrosio filed a letter
of protest with the Litigation Division of the BIR, which was not acted
upon because the assessment notice had allegedly become final,
executory and incontestable.

On May 16, 1985, petitioner, the Estate of the decedent, through Mr.
Ambrosio, filed a formal opposition to the BIR’s Motion for Allowance
of Claim based on the ground that there was no proper service of the
assessment and that the filing of the aforesaid claim had already
prescribed. The BIR filed its Reply, contending that service to
Philippine Trust Company was sufficient service, and that the filing of
the claim against the Estate on November 22, 1984 was within the
five-year prescriptive period for assessment and collection of taxes
under Section 318 of the 1977 National Internal Revenue Code
(NIRC).

On November 19, 1985, the court a quo issued an Order denying

respondent’s claim against the Estate,2 after finding that there was no
notice of its tax assessment on the proper party. The Court of Appeals
rendered a decision in favor of the respondent. Although
acknowledging that the bond of agency between Philtrust and the
decedent was severed upon the latter’s death, it was ruled that the
administrator of the Estate had failed in its legal duty to inform
respondent of the decedent’s death, pursuant to Section 104 of the
National Internal Revenue Code of 1977. Consequently, the BIR’s
service to Philtrust of the demand letter and Notice of Assessment
was binding upon the Estate.

ISSUE: Whether the Estate may be held liable upon notice of

deficiency to PTC.

HELD: No.

The first point to be considered is that the relationship between the

decedent and Philtrust was one of agency, which is a personal
relationship between agent and principal. Under Article 1919 (3) of
the Civil Code, death of the agent or principal automatically terminates
the agency. In this instance, the death of the decedent on April 3,
1979 automatically severed the legal relationship between her and
Philtrust, and such could not be revived by the mere fact that Philtrust